An interest rate swap (IRS) is:
A) A contract to exchange one stream of interest payments for another
B) A temporary exchange of one deposit for another of a longer maturity in the same currency
C) A forward-forward contract
D) A contract to exchange an interest rate stream in one currency for another one in a different currency

Question

Quizplus · Accepted Answer

An interest rate swap is a contract between two parties to exchange one stream of interest payments for another, based on a specified notional amount. One party agrees to pay a fixed rate of interest while the other agrees to pay a floating (variable) rate of interest. The purpose of such a swap can be to manage interest rate risk or to take advantage of comparative advantages in debt markets. B, C, and D refer to different types of financial contracts, but do not describe an interest rate swap.

An Interest Rate Swap (IRS) Is