1. A swap is a method for reducing financial risk. Which of the following statements about swaps is not correct?

a.   A swap involves the exchange of cash payment obligations.

b.   The earliest swaps were currency swaps, in which companies traded debt denominated in different currencies, say dollars and pounds.

c.   Swaps are generally arranged by a financial intermediary, who may or may not take the position of one of the counterparties.

d.   A problem with swaps is the lack of standardized contracts, which limits the development of a secondary market.

2. _______________ risks have the potential for gains or losses.

a. Financial

b. Insurable

c. Pure

d. Speculative

3. Hedging activities and buying insurance are examples of _______________.

a. Risk Avoidance

b. Risk Reduction

c. Risk Retention

d. Risk Transfer