In Order to Measure and Manage Interest Rate Swap Risk

question 53

Multiple Choice

In order to measure and manage interest rate swap risk exposures,a financial intermediary may:

• A) practise marking-to market.
• B) seek security collateral.
• C) require a written performance guarantee from the counterparty's sponsor.
• D) do all of the given answers.

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Definitions:

Standard Deviation

A statistic that measures the dispersion or variability of a dataset relative to its mean, often used in finance to represent the volatility of an investment.

Correlation

A numeric value showing how much two or more variables change in connection with one another.

Beta

A rephrased definition: A statistical measure reflecting the relationship between the stock price movements of an individual company and those of the entire market.

Tobin's Separation Property

A principle in investment theory that suggests the investment decision can be separated from the financing decision, primarily developed by James Tobin.