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, 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.

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Definitions:

Probabilistic Generalization

The process of drawing broad conclusions based on the likelihood or probability derived from specific instances.

Logical Strength

The degree to which the premises of an argument support its conclusion, often determining its persuasiveness or validity.

Counterexamples

Instances or cases that contradict a claim or generalization, showing it to be false or incomplete.