Which of the following statements about diff swaps is true?
A)they involve interest payments in separate currencies
B)they are based on the difference between interest rates in two countries
C)they are based on the difference between interest rates of different maturities
D)the notional amount reduces throughout the life of the swap
E)the notional amount increases throughout the life of the swap

Question

Quizplus · Accepted Answer

Diff swaps, also known as interest rate swaps, are based on the difference between interest rates in two countries. This means that two parties agree to swap interest rate payments, with one party paying a fixed rate and the other party paying a floating rate based on the interest rates in their respective countries. The notional amount remains constant throughout the life of the swap, so answer choices D and E are incorrect. The swap does not involve separate currencies, so answer choice A is also incorrect. The swap is based on interest rates of different maturities, but this is not the defining characteristic of a diff swap, so answer choice C is also incorrect.

Which of the Following Statements About Diff Swaps Is True