A Swap Is a Method Used to Reduce Financial Risk

question 8

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) A company can swap fixed interest payments for floating interest payments.
• Conceptual Questions Page 3

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Definitions:

Internal Integration

The process of ensuring that various components of an organization, such as departments and teams, work together effectively towards common goals.

Collective Identity

A shared sense of belonging to a group, where members possess a common identity and sense of purpose.

Matching Methods

Techniques used in research or evaluation to pair individuals or groups based on similar characteristics to ensure comparability in a study.

Subcultural Groupings

Divisions within a larger culture, distinguished by their unique values, norms, and lifestyle.