In an interest rate swap ______ gains/gain when the three-month BBSW falls.
A) the floating-rate payer
B) the fixed-rate payer
C) both floating- and fixed-rate payers
D) neither floating- nor fixed-rate payers

Question

Quizplus · Accepted Answer

In an interest rate swap, the floating-rate payer is the party that pays the floating rate based on an underlying reference rate (in this case, the three-month BBSW). Therefore, if the three-month BBSW falls, the floating-rate payer gains because they are paying less than they would have if the rate had not fallen. The fixed-rate payer, on the other hand, would lose out on potential savings because they are locked into paying a fixed rate regardless of changes in the underlying reference rate.

In an Interest Rate Swap ______ Gains/gain When the Three-Month