Which combination of the following statements is true about the risks that a swap dealer confronts:
(i)- interest rate risk
(ii)- basis risk
(iii)- exchange rate risk
(iv)- mismatch risk
(v)- sovereign risk
A) (i), (ii), (iii), and (v)
B) (i), (iii), and (iv)
C) (iii), (iv), and (iv)
D) (i), (ii), (iii), (iv), and (v)

Question

Quizplus · Accepted Answer

Swap dealers face a variety of risks due to the nature of their business, which involves trading and hedging with various financial instruments. These risks include interest rate risk (due to fluctuations in interest rates), basis risk (the risk that the value of the instruments used to hedge does not move in perfect correlation with the underlying exposure), exchange rate risk (due to changes in currency exchange rates), mismatch risk (arising from mismatches in the cash flow or maturity of swaps), and sovereign risk (the risk of a country defaulting on its obligations or changing its regulations).

Which Combination of the Following Statements Is True About the Risks