Intermediaries add value to the swap markets by reducing default risk.

Question

Quizplus · Accepted Answer

Intermediaries, such as clearinghouses or swap dealers, help to reduce default risk in swap markets by acting as a counterparty to both parties in the trade. This means that if one party were to default on their obligation, the intermediary would step in and fulfill their side of the swap, preventing the other party from suffering losses. This mechanism helps to increase confidence and liquidity in the swap market, making it easier and cheaper for market participants to trade.

Intermediaries Add Value to the Swap Markets by Reducing Default