Identify the CORRECT statement below regarding an overnight indexed swap (OIS).
A)Interest and principal payments are exchanged at the beginning of the swap.
B)The net settlement is a single payment at the end of the swap term.
C)The fixed-rate payments are set to be equal to the cash rate.
D)OISs are usually long-term arrangements.
E)OISs are used to hedge an exposure to money-market yields.

Question

Quizplus · Accepted Answer

In an overnight indexed swap (OIS), the net settlement is a single payment at the end of the swap term. This payment is based on the difference between the fixed rate and the overnight index average rate over the term of the swap. Options A, C, D, and E are incorrect statements regarding OIS.

Identify the CORRECT Statement Below Regarding an Overnight Indexed Swap