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Problem 5 - Point - counter - point exercise: (20 marks) Should Financial Institutions Engage in Interest Rate Swaps for Speculative Purposes? POINT: Yes. They

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Problem 5 - Point - counter - point exercise: (20 marks) Should Financial Institutions Engage in Interest Rate Swaps for Speculative Purposes? POINT: Yes. They have expertise in forecasting future interest rate movements and can generate gains for their shareholders by taking speculative positions. COUNTER-POINT: No. They should use their main business to generate gains for their shareholders. They should serve as intermediaries for swap transactions only to generate transaction fees, or take a position only if it is to hedge their exposure to interest rate risk. WHO IS CORRECT? Offer your own opinion on this issue by using examples, articles

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