A Swap Is a Method Used to Reduce Financial Risk

question 5

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,who may or may not take the position of one of the counterparties.
• D) A problem with swaps is that no standardized contracts exist,which has prevented the development of a secondary market.
• E) Swaps can involve side payments in order to get the counterparty to agree to the swap.

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