Interest rate swaps are:

Interest rate swaps are:
A . Exchange traded derivative contracts that allow banks to take positions in future interest rates.
B . OTC derivative contracts that allow banks and customers to obtain the risk/reward profile of long-term interest rates without relying on long-term funding.
C . Exchange traded derivative contracts that allow banks and customers to obtain the risk/reward profile of long-term interest rates without having to use long-term funding.
D . OTC derivative contracts that allow banks to take positions in series of future exchange rates.

View Answer

Answer: B

Explanation:

Interest rate swaps are over-the-counter (OTC) derivative contracts. They are designed to help banks and customers manage their interest rate exposure without the need to use long-term funding. In an interest rate swap, two parties exchange cash flows from interest rate payments, typically one fixed and one floating rate, based on a notional principal amount. This allows institutions to benefit from the risk/reward profile of long-term interest rates, enabling them to manage their exposure to interest rate fluctuations efficiently.