Some of the Risks That a Swap Dealer Confronts Are

question 32

Multiple Choice

Some of the risks that a swap dealer confronts are "basis risk" and "sovereign risk." Select the definitions that best describe each.

• A)"Basis risk" refers to the probability that a country will impose exchange restrictions on a currency involved in a swap,and "sovereign risk" refers to a situation in which the floating rates of the two counterparties are not pegged to the same index.
• B)"Basis risk" refers to a situation in which the floating rates of the two counterparties are not pegged to the same index and "sovereign risk" refers to the probability that a country will impose exchange restrictions on a currency involved in a swap.
• C)"Basis risk" refers to interest rate changing unfavorably before the swap bank can lay off to an opposing counterparty the other side of an interest rate swap entered into with a counter party,and "sovereign risk" refers to the probability that a country will impose exchange restrictions on a currency involved in a swap.
• D)"Basis risk" refers to the risk of fluctuating exchange rates,and "sovereign risk" refers to a situation in which the floating rates of the two counterparties are not pegged to the same index.

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