An agreement to swap a fixed interest payment for a floating interest payment would be considered a/an:

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BlackTom AI · Accepted Answer

Let’s unpack the scenario described in the question: an agreement to swap a fixed interest payment for a floating interest payment. This arrangement is characteristic of a swap designed to exchange interest rate exposure rather than currencies or other variables.
Option A: 'A forward swap.' While there are instruments that are swaps entered into at a future date (forward-start swaps), the key feature highlighted in the question is swapping fixed vs floating interest payments, which is the core definition of a standard interest rate swap rather than a forward-start variation. The label 'forward swap' is not the conventional term for this basic mechanism.
Option B: 'currency swap.' A currency swap involves exchanging principal and interest payments in different currencies, creating an exchange rate exposure between currencies. The question’s description does not mention exchanging currencies, only interest payment types. Therefore, this option misidentifies the instrument by focusing on currency exposure rather than interest rate exposure.
Option C: 'interest rate swap.' This matches exactly: a financial agreement where one party pays a fixed rate and the other pays a floating rate on the same notional amount, effectively swapping interest rate payments. This is the standard definition of an interest rate swap.
Option D: 'none of the above.' Given that option C correctly describes the instrument, this choice is inconsistent with the described mechanism, making it incorrect.
In summary, the structure of the described contract aligns with an interest rate swap because it involves exchanging fixed versus floating interest cash flows on a notional principal, without involving exchange of currencies or other features.

An agreement to swap a fixed interest payment for a floating interest payment would be considered a/an:

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An agreement to swap a fixed interest payment for a floating interest payment would be considered a/an:

View Explanation

Log in for full answers

Similar Questions

GHI Industries has issued $180 million worth of long-term bonds at a fixed rate of 14%. GHI Industries then enters into an interest rate swap where it will pay LIBOR and receive a fixed 6% on a notional principal of $180 million. After all these transactions are considered, GHI's cost of funds is:

The interest rate swap strategy of a firm with fixed rate debt and that expects rates to go up is to:

Part 1Interest rate swaps have an advantage over options and futures in​ that:Part 2 A. There is a large market for them. B. They can be written for a long time horizon. C. They are more liquid. D. They can limit interest rate risk.

AIG Co. expects interest rates to rise over the next 12 months. To hedge its floating-rate loan, the company should:

An interest rate swap involves:

Lockheed wants 5-year floating rate debt in USD. 5-year IRS = 4%. SOFR = 4.15%. It could issue 5-year fixed rate at 4.5% or 5-year FRNs at SOFR + 1%. What should it do?

A swap that technically is a succession of forward contracts on interest rates is

More Practical Tools for Students Powered by AI Study Helper

Making Your Study Simpler

Part 1Interest rate swaps have an advantage over options and futures in that:Part 2 A. There is a large market for them. B. They can be written for a long time horizon. C. They are more liquid. D. They can limit interest rate risk.