Which of the following statements is NOT an advantage of a swap transaction?
A) It usually allows the company to achieve a lower cost of funds.
B) It is used to hedge both interest rate risk and foreign exchange risk.
C) It facilitates the restructuring of cash flows associated with existing borrowings.
D) It transfers the credit risk to the counterparty.

Question

Quizplus · Accepted Answer

Transferring credit risk to the counterparty is not an advantage of a swap transaction. In fact, it could be a disadvantage if the counterparty is not creditworthy. The other options are advantages of swap transactions.

Which of the Following Statements Is NOT an Advantage of a Swap