Pricing an interest-only single currency swap after inception involves
A)sending a market order to a swap dealer.
B)finding the difference between the present values of the payments streams the party will receive and pay.
C)finding the sum of the present values of the payments streams that each party will receive in one currency and pay in the other currency, converted to a common currency.
D)none of the above

Question

Quizplus · Accepted Answer

To price an interest-only single currency swap after inception, one needs to find the difference between the present values of the payments streams the party will receive and pay. This involves calculating the present value of the floating interest rate payments and comparing it to the fixed interest rate payments. Option A is incorrect because a market order is not needed to price the swap. Option C is incorrect because it involves a multi-currency swap rather than a single currency swap. Option D is incorrect because there is a method to price the swap after inception.

Pricing an Interest-Only Single Currency Swap After Inception Involves