Question

In: Finance

Which of the following is not a true statement regarding the attractiveness of interest rate swaps...

Which of the following is not a true statement regarding the attractiveness of interest rate swaps compared to financial futures?

A. Swaps may be less attractive if the secondary market is not as deep as the futures markets, so it is more difficult or costly to exit a swap position

B. Interest rate swaps are more attractive than futures because they have shorter maturities and require marking the market

C. Interest rate swaps may be more attractive than futures because they can have longer maturities and do not require marking to market

D. All of the above are true statements

E. None of these are true statements

Solutions

Expert Solution

Interest rate swaps are more attractive than futures because they have shorter maturities and require marking the market is not a true statement regarding the attractiveness of interest rate swaps compared to financial futures. Interest rate swaps generally have longer maturities and future contracts require marking the market.

Therefore correct answer is option B.

True statements are –

· Swaps may be less attractive if the secondary market is not as deep as the futures markets, so it is more difficult or costly to exit a swap position. An interest rate swaps are an agreement between two parties to exchange one set of interest payments for another in the same currency and it is used for hedging interest rate risk.

· Interest rate swaps may be more attractive than futures because they can have longer maturities and do not require marking to market. Marking to market is known as daily settlement and required for future contracts.


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