Which one of the following statements is correct for an interest rate swap?
A) There is an exchange of loan contracts between counterparties.
B) There is no exchange of principal between counterparties.
C) There is an exchange of currencies between counterparties.
D)There is no exchange of cash between counterparties.

Question

Quizplus · Accepted Answer

In an interest rate swap, counterparties agree to exchange interest rate payments on a notional principal amount without exchanging the principal itself. Therefore, there is no exchange of principal between counterparties. Option A is incorrect because there is no exchange of loan contracts. Option C is incorrect because an interest rate swap can be within the same currency. Option D is incorrect because there may be exchanges of cash flows based on the terms of the swap.

Which One of the Following Statements Is Correct for an Interest