An equity swap is an agreement to

Question

Quizplus · Accepted Answer

An equity swap is an agreement between two parties to exchange the returns (or cash flows) generated by a specified equity or equity index for a stream of returns generated by another equity, equity index, or a specified interest rate (e.g., Libor). In this way, one party can gain exposure to the returns generated by the other's equity holdings or the market as a whole without actually owning the underlying assets. Choice A refers to a stock swap, which is a different type of transaction. Choice B refers to a debt-for-equity swap, which is a different type of financial restructuring. Choice D refers to a type of asset swap in which Treasury bonds are exchanged for a corporate bond or a basket of bonds, which is also not the same as an equity swap.

An Equity Swap Is an Agreement to