Interest rate swaps allow one party to exchange:
A)a floating interest rate for a fixed interest rate over the contract term.
B)a fixed interest rate for a lower fixed interest rate over the contract term.
C)a floating interest rate for a lower floating value over the contract term.
D)all of the above.

Question

Quizplus · Accepted Answer

Interest rate swaps involve exchanging one type of interest rate for another. In this case, one party would exchange a floating interest rate (that can go up or down) for a fixed interest rate (that remains the same) over the contract term. Therefore, the correct choice is A. Options B and C are incorrect as they do not accurately describe interest rate swaps.

Interest Rate Swaps Allow One Party to Exchange