SOFA-CFE · Question #109
A swap is an agreement between two or more parties to exchange payments based on the performance of underlying interests.
The correct answer is A. True. A (True) is correct because a swap is, by definition, a financial derivative contract where two or more parties agree to exchange cash flows or payments tied to the performance of an underlying asset, rate, or index - such as interest rates, currencies, or commodities. This is…
Question
A swap is an agreement between two or more parties to exchange payments based on the performance of underlying interests.
Options
- ATrue
- BFalse
How the community answered
(31 responses)- A77% (24)
- B23% (7)
Explanation
A (True) is correct because a swap is, by definition, a financial derivative contract where two or more parties agree to exchange cash flows or payments tied to the performance of an underlying asset, rate, or index - such as interest rates, currencies, or commodities. This is the standard definition used across finance, derivatives law, and exam curricula (CFA, Series 7, etc.).
B (False) is wrong because the statement is an accurate and complete definition - there is no meaningful distortion or error in it to make it false.
Memory tip: Think of a swap as a "trade schedule" - two parties swap payment streams over time based on how some underlying thing performs (e.g., a fixed-rate payer swaps with a floating-rate payer). If you can picture two rivers of cash flowing in opposite directions tied to a benchmark, you've got the concept locked in.
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