Answer: Statement 2 only

## Explanation **Statement 1: "Swaps are contingent claims."** - This statement is **incorrect**. - Contingent claims are derivatives whose payoff depends on the occurrence of a specific event or condition. Examples include options, where the payoff depends on whether the underlying asset price reaches a certain level. - Swaps are **not** contingent claims. They are forward commitments where both parties are obligated to make payments based on predetermined terms, regardless of specific events occurring. **Statement 2: "Swaps are characterized by a series of cash flows."** - This statement is **correct**. - Swaps involve multiple exchanges of cash flows over time, typically at regular intervals (e.g., quarterly, semi-annually). - For example, in an interest rate swap, one party pays a fixed rate while the other pays a floating rate, with these payments occurring at specified intervals throughout the swap's life. Therefore, only Statement 2 is correct. **Correct Answer: B (Statement 2 only)**

Author: LeetQuiz .