For an ordinary interest rate swap already in place,if counterparty A's obligation for one year is $100 000 and counterparty B's obligation is $120 000:
A) counterparty A will pay counterparty B $20 000
B) counterparty A will pay counterparty B $100 000
C) counterparty B will pay counterparty A $20 000
D) counterparty B will pay counterparty A $120 000

Question

Quizplus · Accepted Answer

In an interest rate swap, one counterparty agrees to pay a fixed interest rate on a notional amount while the other counterparty agrees to pay a floating interest rate on the same notional amount. In this scenario, if counterparty A's obligation is $100,000 and counterparty B's obligation is $120,000, it means that counterparty B has agreed to pay a fixed interest rate on $120,000 while counterparty A has agreed to pay a floating interest rate on $100,000. If the floating interest rate is lower than the fixed interest rate, counterparty B will owe counterparty A the difference between the two amounts. Therefore, counterparty B will pay counterparty A $20,000.

For an Ordinary Interest Rate Swap Already in Place,if Counterparty