A swap is a method used to reduce financial risk. Which of the following statements about swaps, if any, is NOT CORRECT?
A) the earliest swaps were currency swaps, in which companies traded debt denominated in different currencies, say dollars and pounds.
B) swaps are very often arranged by a financial intermediary, who may or may not take the position of one of the counterparties.
C) a problem with swaps is that no standardized contracts exist, which has prevented the development of a secondary market.
D) a company can swap fixed interest payments for floating interest payments.
E) a swap involves the exchange of cash payment obligations.

Question

Quizplus · Accepted Answer

There are standardized contracts for swaps and a robust secondary market exists. The International Swaps and Derivatives Association (ISDA) has established standard documentation for swaps, and the market for these instruments is very active.

A Swap Is a Method Used to Reduce Financial Risk