1. The notional principal amount under an interest rate swap is never paid by either counter party.

True

False

2. A(n) _________________ is an agreement between two parties in which each party makes periodic interest payments to the other party based on a specified principal amount. One party pays interest on a variable rate while the other party pays interest on a fixed rate.

a. Swaption

b. Fixed-rate Swap

c. Interest Rate Swap

d. Currency Swap

3. Which statement is FALSE about interest rate swaps.

a. The counterparty who agrees to pay the swap rate is called the payer. The counterparty who agrees to pay the variable rate, and thus receive the swap rate, is called the receiver.

b. An interest rate swap will specify dates during the swap term when the exchange of payments is to occur.

c. At the conclusion (maturity) of the swap, nominals are also swapped.

d. At the time that each exchange of payments is to occur, the two payments are netted and only one payment is made. This is known as the net swap payment.