Question #78
Reading: Reading 25 The Term Structure and Interest Rate Dynamics
PDF File: Reading 25 The Term Structure and Interest Rate Dynamics.pdf
Page: 30
Status: Unattempted
Correct Answer: B
Question
Which of the following is NOT a reason why market participants prefer the swap rate curve over a government bond yield curve? The swap market:
Answer Choices:
A. reflects sovereign credit risk
B. is free of government regulation
C. it is not affected by technical factors
Explanation
Swap rate curves are typically determined by dollar denominated borrowing based on
MRR. These rates are determined by market participants and are not regulated by
governments. Swap rate curves are not affected by technical market factors that affect the
yields on government bonds. The swap rate curve is also not subject to sovereign credit
risk (potential government default on debt) that is unique to each country.