Asked by Malusi Pakade on Jul 17, 2024
Verified
A swap is a method used to reduce financial risk.Which statement about swaps is NOT correct?
A) A swap involves the exchange of cash payment obligations.
B) The earliest swaps were currency swaps, in which companies traded debt denominated in different currencies, say, dollars and pounds.
C) Swaps are very often arranged by a financial intermediary, which may or may not take the position of one of the counterparties.
D) A problem with swaps is the short maturities, which has prevented the development of a secondary market.
Swaps
Financial derivatives where two parties agree to exchange cash flows or other financial instruments for a set period of time.
Currency Swaps
Bilateral agreements to exchange periodic payments where the payments are based in two different currencies.
Financial Intermediary
An institution that facilitates the channeling of funds between lenders and borrowers indirectly.
- Examine the rationale and techniques for managing risk within corporations.
Verified Answer
AT
Andrew TallehJul 18, 2024
Final Answer :
D
Explanation :
The statement that "A problem with swaps is the short maturities, which has prevented the development of a secondary market" is not correct. Swaps actually have flexible maturities and can range from a few months to several years, making them attractive to investors with different investment goals and strategies. Additionally, there is a well-developed secondary market for swaps, with many financial institutions acting as market makers and facilitating trading between buyers and sellers.
Learning Objectives
- Examine the rationale and techniques for managing risk within corporations.
Related questions
_________ Risks Are Threats to Overall Business Success ...
KPMG's Practice That Focuses on Helping Executives Identify Threats to ...
Risk Management Focuses on Anticipating Risk in Situations and Factoring ...
A Market System Tends to Restrict Business Risk to Owners ...
In a Market System,employees and Suppliers ...