A Swap Is a Method Used to Reduce Financial Risk

question 9

Multiple Choice

A swap is a method used to reduce financial risk. Which of the following statements about swaps, if any, is NOT correct?

• A) A swap involves the exchange of cash payment obligations.
• B) The earliest swaps were currency swaps, in which companies traded debt denominated in different currencies, say dollars and pounds.
• C) Swaps are very often arranged by a financial intermediary, which may or may not take the position of one of the counterparties.
• D) A problem with swaps is the short maturities, which has prevented the development of a secondary market.