Which of the following is true of the "netting" process in the swap market?
A)It decreases or mitigates the credit risk on swaps.
B)Both parties make payments to each other as a consequence.
C)It implies that the default exposure of the in-the-money party is the total fixed or floating payment.
D)It does not happen across contracts.
E)Netting by novation increases the potential risk of loss.

Question

Quizplus · Accepted Answer

The netting process in the swap market helps to decrease or mitigate the credit risk on swaps by offsetting the obligations of the two parties involved in the contract. This means that only the net payment is made by one party to the other.

Which of the Following Is True of the "Netting" Process