A Swap Contract Can Best Be Defined As

question 188

Multiple Choice

A swap contract can best be defined as:

• A) A forward contract with the feature that gains and losses are realized each day rather than only on the settlement date.
• B) Hedging an asset with contracts written on a closely related, but not identical, asset.
• C) Risk that futures prices will not move directly with cash price hedged.
• D) An agreement by two parties to exchange, or swap, specified cash flows at specified intervals in the future.
• E) An agreement that gives the owner the right, but not the obligation, to buy or sell a specific asset at a specific price for a set period of time.

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Definitions:

Quantity Effect

The variation in overall income derived from altering the amount of a product sold, while keeping its price stable.

Marginal Revenue

The increase in revenue that results from the sale of one additional unit of a product or service.

Producer Surplus

The mismatch between the price point producers are prepared to accept for a good or service and the actual price they end up receiving.

Monopolist

An individual or firm that is the sole provider of a good or service, possessing significant market power over prices and output.