Which of the following statements best describes a swap?
A)It is a contract in which two parties agree to exchange financial securities.
B)It is a contract in which two parties agree to exchange a series of future cash flows over a specified period of time.
C)It is a contract in which two parties agree to exchange assets.
D)Swap is an acronym for 'savings with annual payments'.

Question

Quizplus · Accepted Answer

A swap is a contract in which two parties agree to exchange a series of future cash flows over a specified period of time. These cash flows can be based on different types of assets such as currencies, interest rates, commodities or securities. Unlike a regular exchange of assets, a swap allows both parties to benefit from the difference in the cash flows they receive, without actually owning the underlying assets.

Which of the Following Statements Best Describes a Swap