Swap contracts can be used to manage various risks including:
A)interest-rate risk
B)foreign exchange risk
C)credit risk
D)an exposure to the cash rate.
E)All of these.

Question

Quizplus · Accepted Answer

Swap contracts can be used to manage all of these risks. They can be used to manage interest-rate risk by exchanging fixed-rate payments for floating-rate payments or vice versa. They can also be used to manage foreign exchange risk by exchanging currencies at a predetermined rate. Credit risk can be managed by including provisions in the swap contract that protect against default by one of the parties. Similarly, an exposure to the cash rate can be managed by including provisions in the contract that protect against changes in the cash rate. Therefore, the best choice is E.

Swap Contracts Can Be Used to Manage Various Risks Including