Consider the following five statements:
i.Swaps may be used to achieve a lower cost of funds for a company.
ii.In an interest rate swap,the two parties swap the principal amount plus the ongoing associated interest obligations.
iii.An intermediated swap is said to be 'matched' when a bank enters into swaps with both firms involved in an interest rate swap.
iv.A 'plain vanilla' swap is the fixed AUD to floating AUD swap.
v.If an intermediary is involved in a swap between two parties,the intermediary will also provide the initial loan to both parties.
How many of these statements are true and how many are false?
A) 3 statements are true and 2 are false
B) 2 statements are true and 3 are false
C) 4 statements are true and 1 is false
D) 1 statement is true and 4 are false

Question

Quizplus · Accepted Answer

Statement i is true as swaps can be used to lower funding costs. Statement ii is false because in an interest rate swap, only interest payments are exchanged, not the principal. Statement iii is true as a matched swap involves a bank entering into swaps with both parties. Statement iv is false because a 'plain vanilla' swap typically refers to a fixed-to-floating interest rate swap, not specifically AUD. Statement v is false as intermediaries do not provide the initial loan in swaps.

Consider the Following Five Statements