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    Question

    An agreement between two counter parties to exchange

    cash flows in the future, is called - 
    A Forward Correct Answer Incorrect Answer
    B Futures Correct Answer Incorrect Answer
    C Swap Correct Answer Incorrect Answer
    D Option Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    Swaps have become popular derivative instruments in recent years all over the world. A swap is an agreement between two counter parties to exchange cash flows in the future. Under the swap agreement, various terms like the dates when the cash flows are to be paid, the currency in which to be paid and the mode of payment are determined and finalized by the parties. Usually the calculation of cash flows involves the future values of one or more market variables. There are two most popular forms of swap contracts, i.e., interest rate swaps and currency swaps.

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