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LOS a, (Part 2): Explain how swaps are terminated. ffice ffice" />
Q1. All of the following are ways to exit a swap contract EXCEPT:
A) entering an offsetting swap with the original counterparty.
B) selling a swaption.
C) making a cash payment to the original counterparty.
Correct answer is B)
Selling a swaption gives the seller an obligation to enter into a swap if the swaption is exercised. To exit a swap, the entity would want to buy the swaption.
Q2. An offsetting swap is a swap that:
A) reduces the credit risk of an earlier swap.
B) is opposite to an existing swap in cash flows.
C) reduces the principal amount of a swap.
Correct answer is B)
An offsetting swap is a swap with opposite cash flows to an existing swap. It is one way to exit a swap position, just as an offsetting trade is used to close out a futures position.
Q3. The least likely way to terminate a swap agreement prior to expiration is to:
A) sell the swap.
B) make/receive a payment to/from the original counterparty.
C) exercise a swaption.
Correct answer is A)
There is no functioning secondary market in swaps; selling a swap would be unusual and would require the permission of the counterparty.
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发表于 2009-3-2 11:17
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