Which of the Following Describes the Process of "Netting" in the Swap

question 2

Multiple Choice

Which of the following describes the process of "netting" in the swap market?

• A)Stripping out the "interest rate" sensitive element of total return swaps to reduce the net portfolio risk.
• B)Acting as an intermediary by bringing together two FIs with opposing interest rate risk exposures to enter into a swap agreement.
• C)Turning fixed-rate liabilities into net variable-rate liabilities.
• D)Calculating the net difference between the two payments, and making a single payment for the net difference.
• E)Squaring off contracts on or before expiry.

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Definitions:

Economy

The system or range of economic activities in a region, country, or community, including the production, consumption, and trade of goods and services.

Self-correct

The ability of an economic market to adjust and return to equilibrium without external intervention.

Aggregate Demand Curve

Represents the total spending on domestic goods and services at various price levels, showing the inverse relationship between price level and demand.

Short-run Aggregate Supply

Represents the total amount of goods and services that producers are willing and able to supply at different price levels in the short-term, considering some prices are sticky.