Which of the Following Describes the Process of "Netting" in the Swap

question 2

Multiple Choice

Which of the following describes the process of "netting" in the swap market?

• A)Stripping out the "interest rate" sensitive element of total return swaps to reduce the net portfolio risk.
• B)Acting as an intermediary by bringing together two FIs with opposing interest rate risk exposures to enter into a swap agreement.
• C)Turning fixed-rate liabilities into net variable-rate liabilities.
• D)Calculating the net difference between the two payments, and making a single payment for the net difference.
• E)Squaring off contracts on or before expiry.

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Definitions:

Bonds Payable

Long-term liabilities representing money borrowed by an entity that must be repaid to creditors at a future date.

Financing Activities

Transactions related to raising capital, repaying investors, and restructuring the financial basis of the entity in the statement of cash flows.

Treasury Stock

Stock that a corporation has once issued and then reacquires.

Cash Dividends

Payments made by a corporation to its shareholders from its profits or reserves, usually in the form of cash.