Equity swaps are equivalent to portfolios of forward contracts calling for the exchange of cash flows based on two different investment rates: (1) a variable debt rate and (2) the return to an equity index.

Question

Quizplus · Accepted Answer

This is a correct statement about equity swaps. They involve exchanging cash flows based on a variable debt rate and the return to an equity index. This allows investors to gain exposure to equity market returns while also managing interest rate risk.

Equity Swaps Are Equivalent to Portfolios of Forward Contracts Calling