An agreement to exchange interest payments based on a fixed payment for those based on a variable rate (or vice versa) is known as a/an:
A) forward rate agreement.
B) interest rate future.
C) interest rate swap.
D) none of the above

Question

Quizplus · Accepted Answer

An agreement to exchange interest payments based on a fixed payment for those based on a variable rate is called an interest rate swap. A forward rate agreement (A) is a type of financial contract that partially functions as a hedging tool or an investment opportunity. An interest rate future (B) is a standardized contract traded on an exchange that obligates the buyer to purchase a specific interest-bearing instrument at a future date for a predetermined price. Therefore, the best choice among the given options is C.

An Agreement to Exchange Interest Payments Based on a Fixed