A Swap Is a Method Used to Reduce Financial Risk

question 14

Multiple Choice

A swap is a method used to reduce financial risk. Which of the following statements about swaps, if any, is NOT CORRECT?

• A) the earliest swaps were currency swaps, in which companies traded debt denominated in different currencies, say dollars and pounds.
• B) swaps are very often arranged by a financial intermediary, who may or may not take the position of one of the counterparties.
• C) a problem with swaps is that no standardized contracts exist, which has prevented the development of a secondary market.
• D) a company can swap fixed interest payments for floating interest payments.
• E) a swap involves the exchange of cash payment obligations.

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