Swap payments typically involve adjusting for the fraction of the year in some fashion.This adjustment is known as
A)the compounding convention
B)the accrual period
C)the fraction convention
D)the money market convention
E)the payment period

Question

Quizplus · Accepted Answer

The adjustment for the fraction of the year in a swap payment is known as the accrual period. This is because the payment amounts in a swap are typically tied to an interest rate or a currency exchange rate, and these rates are quoted on an annualized basis. To calculate the payment for a shorter period of time, such as a quarter or a month, the annual rate must be adjusted based on the fraction of the year that the payment covers. This adjustment is called the accrual period.

Swap Payments Typically Involve Adjusting for the Fraction of the Year