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.
Which of the following are correct?
A) i, ii, iii and iv are true
B) ii, iii, iv and v are true
C) ii, and iv are true
D) i and iii are true

Question

Quizplus · Accepted Answer

Explanation:i. Swaps can indeed be used by companies to achieve a lower cost of funds by taking advantage of comparative advantages in different markets.ii. In an interest rate swap, the principal amount is not exchanged; only the interest payments are swapped between the parties.iii. An intermediated swap is matched when a bank finds counterparties for both sides of the swap, but it does not imply the bank provides the initial loans.iv. A 'plain vanilla' swap typically involves swapping fixed interest payments for floating interest payments, but it is not specific to AUD or any currency unless specified.v. The intermediary in a swap deal facilitates the swap between two parties but does not provide the initial loan to both parties.

Consider the Following Five Statements