An Existing Swap Can Be Effectively Hedged Against Interest Rate

question 38

Multiple Choice

An existing swap can be effectively hedged against interest rate risk by

• A)selling out to another party.
• B)entering into another swap agreement that is the mirror image of the original swap.
• C)setting interest sensitive assets equal to interest sensitive liabilities.
• D)setting asset duration equal to liability duration.
• E)defaulting to the swap intermediary.

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Definitions:

Ordinal Data

Data that can be categorized and ranked; however, the intervals between the categories are not necessarily equal.

Nominal Variable

A categorical variable for which different values represent different categories without any intrinsic ranking order.

Interval Data

A type of numerical data involving measurements where both the order and the exact differences between the measurements matter, but there is no true zero point.

Quantitative Data

Data that can be quantified and verified, and is amenable to statistical manipulation. It represents the quantity of something rather than its quality.