Question of the Week

Which of the following statements least accurately describes the ways in which a swap may be terminated?

a) The winning party may simply wish to terminate the swap by notifying the losing party.
b) The counterparty with the negative value can offer to pay the other party the present value of the swap in the form of a cash settlement.
c) The winning party may simply sell the swap to an another party willing to enter into it.
d) A counterparty can simply enter into an offsetting swap.

Answer:

The correct answer is: a)

If the winning party simply terminates the swap, then he'll get zero for it. If a swap has value, seldom would the winning party just "forget about it". Instead, he would use one of the other termination methods.

2005 LOS: 17.1.E.b