Which of the following is true about plain vanilla swaps?

The statement that plain vanilla swaps involve a fixed-rate payment for a floating-rate payment is accurate because it captures the fundamental characteristic of these financial instruments. Plain vanilla swaps are typically structured as interest rate swaps where one party pays a fixed interest rate while receiving a variable rate (often tied to a benchmark like LIBOR or SOFR). This structure allows institutions to hedge interest rate risk or to speculate based on their expectations of future interest rate movements.

In a plain vanilla swap, the simplicity of this exchange makes it widely used in the financial markets, especially for managing exposure to fluctuating interest rates. The fixed payment gives predictability for one counterparty, while the variable payment allows the other to benefit if interest rates decline.

The other options misrepresent aspects of plain vanilla swaps: they do not solely exchange variable payments, they are very common in practice compared to more complex structures, and they are not limited to private entities as both public and private entities engage in such arrangements.