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.

Question

Quizplus · Accepted Answer

This statement is not correct as standardized contracts for swaps do exist, which has led to the development of a secondary market. Standardized contracts are known as exchange-traded swaps or futures contracts.

A Swap Is a Method Used to Reduce Financial Risk