A Swap Is a Method Used to Reduce Financial Risk

Multiple Choice

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 very 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) A company can swap fixed interest payments for floating interest payments.
Conceptual Questions Page 3