Answered: In Swap contract one counter party has…

In Swap contract one counter party has an obligation but not right, while in an option contract the seller has an obligation.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 4GI: What is a substitution right, and when does that right result in a contract not being a lease?

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Concept explainers

Swaps

A swap is a derivative contract in which two parties are agreed to exchange their cash flows from two different financial instruments for a defined period. In swap contracts, cash flows from one financial instrument are fixed and cash flow from other financial instruments is variable based on the interest rate, exchange rate, and commodity price. Swap contracts are transacted in an over-the-counter system. Swap contracts are utilized to hedge risk and mitigate loss.

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In Swap contract one counter party has an obligation but not right, while in an option contract the seller has an obligation. Do you agree?

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Similar questions

Entering in a swap contract is always advantageous for both parties True False
? Which of the following is NOT true. An options contract is a contractual agreement between two parties. is based on the value of an underlying security. obliges the holder to exercise it at the expiration date. gives a trader the right to buy or sell the underlying security.
Explain the relative merits of using an exchange-traded derivative contract versus using an over-the-counter derivative contract.
When is a forward contract preferred over an option contract ?
All parties involved in a swap will benefit from the creation of a swap arrangement. a. True O b. False
Is the “forward price” the same thing as the “value of the forward contract” Explain.
Which of the following is True? a. Call option and Put option are identical derivatives contracts b. Short Put option is identical to Long Call option c. Short Call option is identical to Long Put option d. None of the above
The following statements relate to derivatives. Which of the following is FALSE?a. Swaps may have cashflows as its underlying assets.b. Options allow the buying party to pay a price for a chance to buy or sell the underlying asset .c. Futures are forward commitments.d. Futures and forwards may be contingent claims wherein the contract can be cancelled upon the agreement of both parties.
Payoff from entering into a forward contract does the buyer have more to gain going long than the seller has to lose going short, profits if the price of the underlying at expiration exceeds the forward price and/or gains from owning the underlying versus owning the forward contract are equivalent? Explain why one or more of the options above are correct. and why, if any of the remaining options are incorrect.
In which of the following contracts BOTH parties have an OBLIGATION to exercise the contract? a) Call Option b) Futures c) Put Option d) all of the above none of the above
Futures contracts offer more flexible terms than a forward contract. True False
Which of the following is true about forward contract expiration? a.A deliverable forward contract stipulates that the short will pay the agreed-upon price to the long, who in turn will deliver the underlying asset to the short. b.Under cash settlement, it permits the short to pay the net cash value of the position on the delivery date. c.Under cash settlement, it permits the long to pay the net cash value of the position on the delivery date. d.Under cash settlement, it permits the long and short to pay the net cash value of the position on the delivery date.