Question

Consider the following five statements:

i. Swaps may be used to achieve a lower cost of funds for a company.
ii. In an interest rate swap, the two parties swap the principal amount plus the ongoing associated interest obligations.
iii. An intermediated swap is said to be ‘matched' when a bank enters into swaps with both firms involved in an interest rate swap.
iv. A ‘plain vanilla' swap is the fixed AUD to floating AUD swap.
v. If an intermediary is involved in a swap between two parties, the intermediary will also provide the initial loan to both parties.

How many of these statements are true and how many are false?

Select one:

a. 3 statements are true and 2 are false

b. 2 statements are true and 3 are false

c. 4 statements are true and 1 is false

d. 1 statement is true and 4 are false

Answer 1

Ans b. 2 statements are true and 3 are false

i. Swaps may be used to achieve a lower cost of funds for a company.
ii. In an interest rate swap, the two parties swap the principal amount plus the ongoing associated interest obligations.
iii. An intermediated swap is said to be ‘matched' when a bank enters into swaps with both firms involved in an interest rate swap.
iv. A ‘plain vanilla' swap is the fixed AUD to floating AUD swap.
v. If an intermediary is involved in a swap between two parties, the intermediary will also provide the initial loan to both parties.