In a Swap Arrangement,both Parties May Be Able to Receive

question 89

Multiple Choice

In a swap arrangement,both parties may be able to receive more favourable funding rates than they would have done without the swap,and the swap dealer receives a spread as well.Where does the cost saving originate from?

• A) The bank swap dealer effectively guarantees payments of all obligations.
• B) The parties involved in the swap are able to borrow where each has a relative cost advantage.
• C) The party paying floating cash flows always pays less than the party paying fixed cash flows.
• D) With the bank always acting as a swap counterparty, each party is able to reduce the risk profile.

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Definitions:

Business Cycle

The fluctuations in economic activity over time, characterized by periods of expansion (growth) and contraction (recession) in the economy.

Business Activity

The aggregate economic actions carried out by companies, including production, sales, and services, influencing the overall economic health.

Index of Leading Indicators

A composite of economic variables that predicts future economic activity, aiding in economic forecasting.

Recessions

Periods of temporary economic decline during which trade and industrial activities are reduced, generally identified by a fall in GDP in two successive quarters.