Swaps provide a real economic benefit to the counterparties only if a barrier exists to prevent ______ from functioning fully.
A) hedging
B) factoring
C) arbitrage
D) forfeiting

Question

Quizplus · Accepted Answer

Swaps provide a real economic benefit to counterparties only if there is a barrier to prevent arbitrage from functioning fully. If there were no barriers, then counterparties could easily create their own synthetic swaps by combining other financial instruments, making the original swap unnecessary. However, if there are barriers to creating synthetic swaps, then the original swap provides a unique economic benefit to the counterparties.

Swaps Provide a Real Economic Benefit to the Counterparties Only