Which financial entities typically act as dealers in swaps?

In the context of swaps, dealers are financial entities that facilitate the trading of swap contracts by acting as intermediaries between parties looking to enter into these agreements. The correct choice highlights that commercial banks, dealers, and financial institutions are the primary participants that operate in this role.

Commercial banks are heavily involved in the swap market as they often use swaps to manage their interest rate and currency exposure, along with providing liquidity to the market. Investment banks and specialized dealers also participate as they have the expertise to structure complex swap agreements tailored to their clients' needs. Additionally, various financial institutions engage in swaps as part of their risk management strategies and to enhance their investment capabilities.

In contrast, the other entities listed in the incorrect options typically do not have the same level of involvement in the swap market. Central banks primarily focus on monetary policy and stabilizing the national economy rather than acting as dealers. Hedge funds generally trade on their own behalf and may utilize swaps but are not the main dealers in this space. Similarly, while insurance companies may use swaps for hedging purposes, they are not primarily defined as dealers in the context of swap transactions.

Thus, the comprehensive involvement of commercial banks, dealers, and financial institutions in catering to the swap market needs solidifies why this