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, which may or may not take the position of one of the counterparties.
D) A problem with swaps is the short maturities, which has prevented the development of a secondary market.

Question

Quizplus · Accepted Answer

The statement "A problem with swaps is the short maturities, which has prevented the development of a secondary market" is not correct. Swaps typically have longer maturities than other financial instruments and a robust secondary market has developed for many types of swaps.

A Swap Is a Method Used to Reduce Financial Risk