Which of the following regarding the role of a financial intermediary in an interest rate swap is incorrect?
A) Most swaps involve a financial intermediary as counterparty.
B) The financial intermediary will most often seek to engage in an offsetting swap.
C) The intermediary makes its profit by maintaining a spread between the rates offered to the two counterparties.
D) The financial intermediary, by establishing a matched swap, ends up with a positive net exposure in the swap market.

Question

Quizplus · Accepted Answer

The statement that the financial intermediary ends up with a positive net exposure in the swap market by establishing a matched swap is incorrect. The role of the financial intermediary is to match counterparties with offsetting needs, not to take on additional risk in the swap market. Therefore, the correct statement is that the financial intermediary makes its profit by maintaining a spread between the rates offered to the two counterparties.

Which of the Following Regarding the Role of a Financial