Swaps 101

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Questions and Answers

What is a swap?

  • A fixed cashflow agreement between two counterparties (correct)
  • A loan agreement between two parties
  • A type of stock exchange
  • A type of insurance contract

What is a swap?

  • A type of stock that pays a variable dividend
  • A type of bond that pays a fixed interest rate
  • A contract between a buyer and a seller for the purchase of goods
  • An agreement between two counterparties to exchange cashflows at fixed intervals (correct)

What is the underlying asset of a swap?

  • A bond (correct)
  • A commodity
  • A real estate property
  • A stock

What is the underlying asset of a swap typically?

<p>A debt instrument or a foreign currency (C)</p>
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What is a limitation of the swaps market?

<p>It is virtually limited to large corporations and financial institutions (D)</p>
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What are some limitations of the swaps market?

<p>Illiquidity and difficulty in finding a counterparty (A)</p>
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