A financial institution may participate in the swaps markets by:

Question

Quizplus · Accepted Answer

A financial institution may participate in the swaps markets by both serving as an intermediary by matching up parties that wish to engage in a swap and by engaging in swaps to reduce interest rate risk. By serving as an intermediary, a financial institution can earn fees on the transactions. By engaging in swaps to reduce interest rate risk, a financial institution can manage its exposure to interest rate fluctuations. Option C is not a common way for financial institutions to participate in the swaps markets, as assuming credit risk can be very risky and is usually reserved for specialty firms that specialize in managing credit risk in swaps transactions.

A Financial Institution May Participate in the Swaps Markets By