Which of the Following Is a Characteristic of a Swap

question 146

Multiple Choice

Which of the following is a characteristic of a swap seller?

• A)They generally have a higher credit rating
• B)They prefer flexible short-term interest rate
• C)They often have a negative duration gap
• D)They generally have large holdings of short-term assets
• E)All of the options are correct

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Definitions:

Diversifiable Risk

A type of investment risk that can be reduced or eliminated through portfolio diversification, as opposed to systemic risk which affects all investments.

Systematic Risk

The inherent risk that affects the entire market or a certain segment of the market, often influenced by factors like political, economic, and interest rate changes that cannot be mitigated through diversification.

Firm-specific Risk

The type of risk that affects a particular company or industry, as opposed to systemic risk, which affects the entire market.

Correlation Coefficient

A statistical measure that describes the extent to which two variables fluctuate together, ranging from -1 (perfect negative correlation) to +1 (perfect positive correlation).