Firms A and B have entered into an interest rate swap. On the first payment date, Firm A owes Firm B 12 percent of $10 million, and Firm B owes Firm A 14 percent of $10 million. Most likely, this transaction will be settled in what manner?

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In an interest rate swap, the parties typically net the payments. Firm A owes $1.2 million (12% of $10 million) and Firm B owes $1.4 million (14% of $10 million). The net payment is $200,000, so Firm B will send Firm A $20,000.

Firms a and B Have Entered into an Interest Rate