The payer of total return swap is likely to have a host of r

The payer of total return swap is likely to have a host of reasons to enter into this HLT, for example:

Question options:

1)

2)

3)

4)

Solution

Total return SWAP is a forward contract between two parties to exchange the return from any financia assets. In the contract, one party pays based on set of rate and other party pays based on the return that particular assets.

The payer of total return swap is likely to have a host of reasons to enter into this HLT, for example Exploiting the leverage as the return/risk can be magnified.

So, option (2) is correct answer.