CFA CFA Level 1 Question of the Week – Derivatives

Question of the Week – Derivatives

  • This topic has 5 replies, 4 voices, and was last updated Jan-18 by AdaptPrep.
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  • AdaptPrep
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    Which of the following are the least likely methods of terminating a swap?

    • Purchasing a swaption
    • Selling the swap to a counterparty
    • Returning the swap to the exchange
    simply_complex2
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    i was thinking to myself…why is this question so familiar, and then i realized it was on the Passedtense mock i took yesterday :smiley:

    ufsguy
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    swaps are otc agreements, so returning it to an exchange doesn’t make much sense…

    ufsguy
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    oh… it says what’s the least likely method…. yes, c is the best answer.

    wm247
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    LEAST, MOST…. those words really start to get on my nerves. Under pressure, it’s so easy to overlook them, and thus bye-bye 1/240 point. :s

    AdaptPrep
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    The least likely method is returning the swap to the exchange. Most swaps are over-the-counter
    agreements, so there is no exchange. Even if there were, the exchange isn’t in
    the business to assume one side of the swap, but rather to pair buyers and
    sellers.

    The following methods of terminating a swap are feasible:

    • Purchasing a swaption
    • Selling the swap to a counterparty
    • Enter into a separate offsetting swap
    • The contract specifies early termination by either party
      with cash settlement
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