Q1. Which of the following best describes a Total Return Swap (TRS) on a corporate bond?
A A contract where the bond issuer pays interest directly to a government depository
B A contract where one party transfers total economic performance of a bond (interest + capital gains) to a counterparty Correct
C A government scheme to swap foreign bonds for domestic corporate bonds at fixed rates
D An RBI facility to buy corporate bonds in the secondary market during liquidity crises
Explanation
A Total Return Swap (TRS) is a derivative in which one party transfers the total economic return of a reference asset — including all interest income and capital appreciation/depreciation — to a counterparty in exchange for periodic fixed or floating payments.