A Limitation of Interest Rate Swaps Is That There Is

question 36

True/False

A limitation of interest rate swaps is that there is a risk to each swap participant that the counterparticipant could default on his payments.

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Definitions:

Utility Function

A mathematical representation in economics that defines the level of satisfaction or utility an individual receives from different bundles of goods and services.

Expected Return

The average of the probability distribution of possible returns for an investment, symbolizing its anticipated profitability.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values.

Mean-Variance Criterion

An investment principle where portfolios are selected based on their expected returns (mean) and the variability of those returns (variance), aiming to optimize the trade-off between risk and return.