Why Were Inverse Floaters Developed

question 21

Multiple Choice

Why were inverse floaters developed?

• A)To exchange specified periodic cash flows in the future based on some underlying instrument.
• B)To better manage their interest rate, foreign exchange, and credit risks of corporate enterprises.
• C)To lower the cost of financing for government agencies.
• D)To determine payments and timing of payments when there is no standardized contract.
• E)To keep the swap market liquid by locating or matching counterparties.

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Definitions:

Security Held

An investment owned by an individual or organization, including stocks, bonds, or any other investment vehicle.

Zero Variance

A statistical condition in which all data points in a set are identical, offering no variability among them.

Expected Returns

The expected yield from an investment, considering the likelihood of different results.

Positive Variance

The difference between actual performance and expected performance where the actual outcome is more favorable than what was anticipated.