QUESTION 25

Which of the following statements correctly describes

the characteristics of interest rate swaps?

a.   

Because interest rate swaps

are backed by a formal exchange, credit risk is low.

b.   

It is an agreement between two parties

to exchange future cash flows (based on a notional principal amount) at

specified times in the future. according to certain predetermined rules.

c.    

It is an agreement between two parties

to exchange future notional principal amounts at specified times in the future.

d.   

The interest rate swap strategy becomes

an extremely effective tool for two parties for hedging interest rate risk.

1.    a and c

2.    a and b

3.    b and c

4.    b and d