Derivatives Q27

27Which of the following is most likely to be correct regarding interest rate swaps?

A
Interest rate swaps provide the right to buy or sell the underlying asset in the future.
B
Interest rate swaps provide the promise to provide credit protection in the event of a default.
C
Interest rate swaps involve the obligation to lend or borrow at a given rate in the future at a fixed rate.

Option : C
Explanation : Interest rate swaps are forward commitments that require one party to pay a fixed rate and the other party to pay floating rate during the life of the swap. A and B are incorrect because they are characteristics of credit default swaps.

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