24-61 A swap can be effectively hedged against interest rate risk by
A)selling out to another party.
B)entering into another swap agreement that is the mirror image of the original swap.
C)setting interest sensitive assets equal to interest sensitive liabilities.
D)setting asset duration equal to liability duration.
E)defaulting to the swap intermediary.

Question

Quizplus · Accepted Answer

Entering into another swap agreement that is the mirror image of the original swap (also known as a reverse swap) creates an offsetting position, effectively hedging against interest rate risk. This is a common practice in the financial market to manage risk. The other choices do not provide an effective hedging strategy for interest rate risk in a swap.

24-61 a Swap Can Be Effectively Hedged Against Interest Rate