Total return swaps (TRSs)are sometimes undertaken between banks who can access an asset on-balance-sheet and funds that lack access to,or are not allowed to,hold the asset.In such a situation,

Question

Quizplus · Accepted Answer

(a)is false,as the TRS where the bank pays the total return and receives Libor (for example)effectively reduces its exposure to the credit risky asset.(b)is vague;the fund is not "making" the bank do anything,and it is the fund,not the bank,that is taking on the credit risk of the underlying asset.(c)is invalid-TRS are usually entered into for mutual benefit.(d)is valid,as the bank holds the asset,and via the TRS,effectively "leases" it to the fund,which then reaps the return (use)of the asset for a fee (the payment to the bank).

Total Return Swaps (TRSs)are Sometimes Undertaken Between Banks Who Can