Swaps are primarily used to reduce the risk of future interest rate changes or foreign exchange rate changes. They allow parties to exchange cash flows or currencies in order to mitigate the risk associated with these changes. While swaps may be used in other financial transactions, such as easing the buying and selling of retail sweep accounts, this is not their primary purpose.

Solved

Swaps Are Used to

Question 28

Multiple Choice

Swaps are used to

A) ease the buying and selling of retail sweep accounts.
B) ease the buying and selling of collateralized mortgage obligations.
C) hedge against liquidity risk.
D) reduce the risk of future interest rate changes or of future foreign exchange rate changes.

Correct Answer: