Interest rate swaps:
A) are a group of option contracts with varying expiration dates.
B) are rarely used by U.S. business firms.
C) can involve exchanging one floating-rate loan for another floating-rate loan.
D) require two firms to have access to loans with equivalent terms.
E) are all based on the U.S. T-bill index.

Question

Interest rate swaps: 
A) are a group of option contracts with varying expiration dates.
B) are rarely used by U.S. business firms.
C) can involve exchanging one floating-rate loan for another floating-rate loan.
D) require two firms to have access to loans with equivalent terms.
E) are all based on the U.S. T-bill index.

Quizplus · Accepted Answer

Interest rate swaps involve exchanging one type of loan for another, usually switching from a floating-rate loan to a fixed-rate loan or vice versa. Therefore, option contracts (A), rarity of use by U.S. business firms (B), and reliance on the U.S. T-bill index (E) are not applicable or accurate. It's not necessary for the two firms to have access to loans with equivalent terms (D), as long as they can agree on the terms of the swap.

Interest Rate Swaps