In most interest rate swaps,netting reduces the default risk because the parties actually exchange only the difference in the interest payments.

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In an interest rate swap, the parties exchange cash flows based on an agreed-upon notional amount, but they don't exchange the actual principal. This means that they only exchange the difference in the interest payments, which reduces the default risk. Netting is the process of combining multiple financial obligations to arrive at a single net amount, which further reduces the risk of default. Therefore, in most interest rate swaps, netting does reduce the default risk.

In Most Interest Rate Swaps,netting Reduces the Default Risk Because