Question 1

Risk management strategies involving interest rate agreements can be classified as forward-based or option-based.

Accepted Answer

A) True 
 B)False

Question 2

The forward rate agreement is the most complicated of the OTC interest rate contracts.

Accepted Answer

A) True 
 B)False

Question 3

A ____ contract can be viewed as a prepackaged series of forward rate agreements to buy or sell LIBOR at the same fixed rate.

Accepted Answer

A) Swap 
B) Cap 
C) Floor 
D) Collar 
E) None of the above 
A) Swap 
B) Cap 
C) Floor 
D) Collar 
E) None of the above

Question 4

Exhibit 23.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The WallMal Company has entered into a 4-year interest rate swap, with semiannual settlement, to pay a fixed rate of 8% per year and receive 6-month LIBOR. The notional principal is $50,000,000.
-Refer to Exhibit 23.7. Indicate the market value of the swap to the WallMal Company.

Accepted Answer

A) $5,786,345 
B) -$3,575,987 
C) $1,289,450 
D) -$1,514,900 
E) $1,250,075 
A) $5,786,345 
B) -$3,575,987 
C) $1,289,450 
D) -$1,514,900 
E) $1,250,075

Question 5

Exhibit 23.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Darden Industries has decided to borrow $25,000,000.00 for six months in two three-month issues. As the Treasurer, you are concerned that interest rates will rise over the next three months and the rate upon which the second payment will be based will be undesirable. (The amount of Darden's first payment will be known at origination.) To reduce the company's interest rate exposure, you decide to purchase a 3 * 6 FRA whereby you pay the dealer's quoted fixed rate of 4.5% in exchange for receiving 3-month LIBOR at the settlement date. In order to hedge her exposure, the dealer buys LIBOR from McIntire Industries at its bid rate of 4%. (Assume a notional principal of $25,000,000.00 and that there are 60 days between month 3 and month 6.)
-Refer to Exhibit 23.2. How much compensation does the dealer receive for transaction costs, credit risk and other costs associated with matching the FRA's?

Accepted Answer

A) $31,250 
B) $21,350 
C) $41,000 
D) $48,150 
E) None of the above 
A) $31,250 
B) $21,350 
C) $41,000 
D) $48,150 
E) None of the above

Question 6

Exhibit 23.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The WallMal Company has entered into a 4-year interest rate swap, with semiannual settlement, to pay a fixed rate of 8% per year and receive 6-month LIBOR. The notional principal is $50,000,000.
-Refer to Exhibit 23.7. Assume that one year later the fixed rate on a new 3-year receive fixed pay floating LIBOR swap has fallen to 7% per year. Settlement is on a semiannual basis. Calculate the market value of the FRN based on $100 face value.

Accepted Answer

A) $102.66 
B) $100.00 
C) $95.56 
D) $89.63 
E) $70.77 
A) $102.66 
B) $100.00 
C) $95.56 
D) $89.63 
E) $70.77

Question 7

____ has coupons denominated in a currency other than that of their principal.

Accepted Answer

A) Eurodollar bonds 
B) Dual currency bonds 
C) Euromarket bonds 
D) Bi-currency bonds 
E) Forward currency bonds 
A) Eurodollar bonds 
B) Dual currency bonds 
C) Euromarket bonds 
D) Bi-currency bonds 
E) Forward currency bonds

Risk management strategies involving interest rate agreements can be classified as forward-based or option-based.

The forward rate agreement is the most complicated of the OTC interest rate contracts.

A ____ contract can be viewed as a prepackaged series of forward rate agreements to buy or sell LIBOR at the same fixed rate.

____ has coupons denominated in a currency other than that of their principal.

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Organization and Functioning of Securities Markets

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Introduction to Security Valuation

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Equity Portfolio Management Strategies

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters

Exam 23: Swap Contracts, Convertible Securities, and Other Embedded Derivatives

Risk management strategies involving interest rate agreements can be classified as forward-based or option-based.

The forward rate agreement is the most complicated of the OTC interest rate contracts.

A ____ contract can be viewed as a prepackaged series of forward rate agreements to buy or sell LIBOR at the same fixed rate.

____ has coupons denominated in a currency other than that of their principal.

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Organization and Functioning of Securities Markets

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Introduction to Security Valuation

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Equity Portfolio Management Strategies

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters