What characteristic distinguishes an interest rate swap from other derivatives?

An interest rate swap is primarily characterized by the fact that there is no exchange of principal between the parties involved. This means that while the parties will exchange interest payments based on a notional amount, the principal amount itself is never actually transferred. The focus of the swap is on the exchange of cash flows resulting from differing interest rates, rather than the actual transfer of funds reflecting the underlying principal.

This characteristic sets interest rate swaps apart from many other types of derivatives that may involve some form of asset or cash transfer that relates directly to the principal amount. For instance, options or futures contracts can involve obligations to buy or sell an asset or to deliver cash flows based on the value of an underlying asset, often requiring the transfer of a principal amount or the actual underlying goods.

The other options do not accurately describe the nature of an interest rate swap. Physical delivery of goods typically pertains to commodity derivatives, while an interest rate swap is focused on cash flows. It's not necessarily a long-term investment, as these swaps can be structured for various durations, and while corporations commonly use swaps, they are not exclusively used by them; financial institutions and governments may also engage in these transactions.