What is one disadvantage associated with a putable swap?

The correct choice identifies a significant aspect of putable swaps. A putable swap involves a premium that is reflected in the floating rate. This occurs because the holder of the put option (the party that can “put” the swap back to the counterparty) demands compensation for the flexibility afforded by the put feature. This premium translates to a higher floating rate compared to a standard swap without this feature, as the counterparty incurs additional risk if the swap is exercised early.

This characteristic makes the putable swap potentially more expensive for the party seeking the flexible exit option, especially in environments where interest rates may fall and the party would exercise the put. Understanding this premium helps in analyzing the cost-benefit balance when considering the flexibility associated with putable swaps. The other choices do not accurately represent disadvantages or are not correct in this context, as they either refer to the guarantees of fixed rates, cost comparisons, or flexibility considerations that do not align with the nature of putable swaps.