Which of the following is NOT a reason for entering a plain vanilla swap?
A)To provide a cheaper method of raising funds than borrowing in the preferred market.
B)To achieve a lower overall borrowing rate.
C)To hedge an interest rate exposure.
D)To hedge an exchange rate exposure.
E)None of these.

Question

Quizplus · Accepted Answer

Plain vanilla swaps are mainly used to hedge interest rate exposure or to lower overall borrowing costs. They are not used to hedge exchange rate exposure, as this would require a different type of swap, such as a currency swap.

Which of the Following Is NOT a Reason for Entering