Participants in financial markets use interest rate swaps to:
A) Compensate the asset/liability manager for risk-taking.
B) Alter the cash flow characteristics of their assets or liabilities.
C) Capitalize on perceived capital market imperfections.
D) b and c only.
E) All of the above.

Question

Quizplus · Accepted Answer

Interest rate swaps are financial instruments used to alter the cash flow characteristics of assets or liabilities (choice B) and to capitalize on perceived capital market imperfections (choice C). They are not used to compensate asset/liability managers for risk-taking (choice A), making D (choices B and C only) the correct answer.

Participants in Financial Markets Use Interest Rate Swaps To