Which of the Following Is an Advantage of Having Swap

question 58

Multiple Choice

Which of the following is an advantage of having swap dealers?

• A)They serve the function of taking the opposite side of each transaction in order to keep the swap market liquid.
• B)They reduce the search costs of finding counterparties having mirror image financing requirement.
• C)They generally guarantee swap payments over the life of the contract.
• D)They incur any costs associated with the default by replacing the defaulting party on the same terms as the original swap.
• E)All of these.

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Definitions:

Default Risk

The possibility that a borrower fails to meet the legal obligations or conditions of a debt.

Liquidity Risk

Refers to the uncertainty of a company's ability to meet its short-term financial commitments due to an inability to convert assets to cash quickly without significant loss.

Inflation Rates

The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.

Maturity Risk

The risk that arises from the uncertain future value of investments that have a fixed earnings rate and a fixed maturity date.