CFA Practice Question

CFA Practice Question

Which of the following is NOT considered a limitation of the swaps market?
A. It can be difficult to locate a counterparty to take the opposite side of the transaction.
B. Swaps cannot be altered or terminated early without the agreement of both parties.
C. In contrast to the futures and options exchanges, only the counterparties in a swap know that is has taken place.
Explanation: The fact that the swaps market provides privacy not available in exchange trading is considered a benefit by many participants.

User Contributed Comments 5

User Comment
keithinny Never heard of anyone having difficulty finding a counterpart in the swaps market.
eddeb Well, it sure is more difficult than in exchance market..
RCCFA what abt the early termination not being possible without consent of both parties??? isnt that a benefit too??
volkovv possibility of early termination is not a benefit but its not a major limitation as well, you can always enter into an offsetting swap and techincally close out your position, however credit risk is involved and market may not be as liquid, so it may not be that easy to find a counterparty, that's why C is the answer, because that is clearly a benefit to swap market
krisc What about swaption??? Swaption would NOT require the approval of the other party....
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