An Existing Swap Can Be Effectively Hedged Against Interest Rate

question 38

Multiple Choice

An existing swap can be effectively hedged against interest rate risk by

• A)selling out to another party.
• B)entering into another swap agreement that is the mirror image of the original swap.
• C)setting interest sensitive assets equal to interest sensitive liabilities.
• D)setting asset duration equal to liability duration.
• E)defaulting to the swap intermediary.

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Definitions:

Exports

Goods and services produced in one country and sold to buyers in another, contributing to the exporting nation's GDP.

Net National Product

The total market value of all goods and services produced by the residents of a country, adjusted for depreciation.

Depreciation

Depreciation is the accounting process of allocating the cost of a tangible asset over its useful life, reflecting the loss of value due to wear and tear, decay, or obsolescence.

Indirect Business Taxes

Taxes imposed on the production, sale, or consumption of goods and services, such as sales tax or value-added tax, which are indirectly paid by consumers.