Swaps provide a real economic benefit to the counterparties only if a barrier exists to prevent ______ from functioning fully.
A)hedging
B)factoring
C)arbitrage
D)forfaiting

Question

Quizplus · Accepted Answer

Swaps allow counterparties to exchange cash flows based on different variables or currencies, providing a way to hedge against risks. However, without a barrier preventing arbitrage, counterparties could simply trade in the underlying assets instead, rather than using the swap. Therefore, in order for swaps to provide an economic benefit, there must be some barrier to arbitrage, such as regulatory restrictions or market inefficiencies.

Swaps Provide a Real Economic Benefit to the Counterparties Only