A swap is a method used to reduce financial risk. Which of the following statements about swaps, if any, 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 often arranged by a financial intermediary, who may or may not take the position of one of the counterparties.
D) A problem with swaps is that no standardized contracts exist, which has prevented the development of a secondary market.
E) Swaps can involve side payments in order to get the counterparty to agree to the swap.

Question

Quizplus · Accepted Answer

This statement is not correct as standardized contracts do exist for swaps, and a secondary market has developed for certain types of swaps. Standardized contracts provide a benefit of liquidity and transparency, making it easier for investors to buy and sell securities.

A Swap Is a Method Used to Reduce Financial Risk