Identify the Correct Statement Regarding a Plain Vanilla Swap

question 17

Multiple Choice

Identify the correct statement regarding a plain vanilla swap.

• A)Interest and principal payments are exchanged at the beginning of the swap.
• B)The net settlement is a single payment at the end of the swap term.
• C)The fixed-rate payments are set equal to the expected floating-rate payments.
• D)The flow of payments between parties may change direction during the life of the swap.
• E)There is no default risk involved in a plain vanilla swap.

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Definitions:

Capital Budgeting

The process of planning and managing a company's long-term investments in projects and assets.

What-If Questions

Hypothetical questions used to explore the effects of changes in variables or conditions, often used in planning and decision making.

Forecasting Risk

The possibility of error in projecting future values such as revenues, costs, or stock prices, due to uncertainty about future events.

Initial Investment

Refers to the initial capital outlay or amount of money invested to start a project or investment.