Question

Which of the following statements is correct about SWAP ? Select one: a. Notional principal is...

Which of the following statements is correct about SWAP ? Select one:

a. Notional principal is exchanged both in the case of Interest Rate Swaps as well as Currency Swaps

b. Notional principal is exchanged only in the case of Currency Swaps

c. Notional principal is exchanged neither in the case of Interest Rate Swaps nor in case of Currency Swaps

d. Notional principal is exchanged only in the case of Interest Rate Swaps

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Answer #1

d. Notional principal is exchanged only in the case of Interest Rate Swaps

-The notional principal amount, in an interest rate swap, is the predetermined dollar amounts, or principal, on which the exchanged interest payments are based.

-According to Treasury Regulations, a notional principal amount is "a financial instrument that provides for the payment of amounts by one party to another at specified intervals calculated by reference to a specified index upon a notional principal amount in exchange for specified consideration or a promise to pay similar amounts."

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