Financial Derivatives (Level 6, Unit 2)

Question

Which preventive measure is most critical when handling Interest rate swaps? A US-based multinational corporation is currently restructuring its debt portfolio, which includes several billion dollars in floating-rate notes. To manage interest rate exposure, the treasury department has entered into a series of pay-fixed, receive-floating interest rate swaps. As an internal auditor conducting a pre-implementation review of the control environment, you observe that the swaps are categorized as non-cleared under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Given the volatility in the SOFR (Secured Overnight Financing Rate) environment and the potential for significant mark-to-market swings, which control strategy provides the most effective safeguard against systemic and counterparty risks?