8006 Exam Dumps | Which of the following statements are true: I. The swap rate, also called the swap spread, is initially

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Exam I: Finance Theory Financial Instruments Financial Markets - 2015 Edition
PRMIA.8006.v2021-04-25.q101
Question 82

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Question 82/101

Which of the following statements are true:
I. The swap rate, also called the swap spread, is initially calculated so that the value of the swap at inception is zero.
II. The value of a swap at initiation is different from zero and is equal to the difference between the NPV of the cash flows of the two legs of the swap III. OTC swaps are standardized and limited to a defined set of standard contracts IV. Interest rate and commodity swaps are the types of swaps that are most traded

A. I, II and IV

B. II and III

C. I and IV

D. II, III and IV

Correct Answer: C

Explanation
Swaps rates are calculated such that the swap's value at inception is zero. Therefore statement I is correct and statement II is incorrect. OTC swaps are not standardized, in fact they are customized by the parties to suit their needs, which is why they are over-the-counter. Therefore statement III is incorrect. It is correct that interest rate and commodity swaps are the most traded, and statement IV is correct.
Therefore Choice 'c' is the correct answer.

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