Question 1

Which of the following swaps are also knows as "plain vanilla" swaps?

Accepted Answer

A)  "Fixed-for-fixed" single currency swap. 
B)  "Fixed-for-floating" single currency swap. 
C)  "Fixed-for-fixed" currency swap involving two different currencies. 
D)  "Floating -for- floating" currency swap involving two different currencies. 
A)  "Fixed-for-fixed" single currency swap. 
B)  "Fixed-for-floating" single currency swap. 
C)  "Fixed-for-fixed" currency swap involving two different currencies. 
D)  "Floating -for- floating" currency swap involving two different currencies.

Question 2

Suppose ABC Investment Banker,Ltd.is quoting swap rates as follows: 7.50 - 7.85 percent annually against six-month dollar LIBOR for dollars,and 11.00 - 11.30 percent annually against six-month dollar LIBOR for British pound sterling.ABC would enter into a $/£ currency swap in which:

Accepted Answer

A)  it would pay annual fixed-rate dollar payments of 7.85% in return for receiving annual fixed-rate £ payments at 11.3%. 
B)  it will receive annual fixed-rate dollar payments at 7.5% against paying annual fixed-rate £ payments at 11%. 
C)  it would pay annual fixed-rate dollar payments of 7.5% in return for receiving annual fixed-rate £ payments at 11.3%. 
D)  None of these. 
A)  it would pay annual fixed-rate dollar payments of 7.85% in return for receiving annual fixed-rate £ payments at 11.3%. 
B)  it will receive annual fixed-rate dollar payments at 7.5% against paying annual fixed-rate £ payments at 11%. 
C)  it would pay annual fixed-rate dollar payments of 7.5% in return for receiving annual fixed-rate £ payments at 11.3%. 
D)  None of these.

Question 3

Which combination of the following statements is true about a swap bank?
(i)- It is a generic term to describe a financial institution that facilitates swaps between counterparties.
(ii)- It can be an international commercial bank.
(iii)- It can be an investment bank.
(iv)- It can be a merchant bank.
(v)- It can be an independent operator.

Accepted Answer

A)  (i) and (ii) 
B)  (i), (ii) and (iii) 
C)  (i), (ii), (iii) and (iv) 
D)  (i), (ii), (iii), (iv) and (v) 
A)  (i) and (ii) 
B)  (i), (ii) and (iii) 
C)  (i), (ii), (iii) and (iv) 
D)  (i), (ii), (iii), (iv) and (v)

Question 4

$\begin{array}{lcc} 
&\text { Canadian interest rate }&\text {french interest rate }\
& \text { on CS loans } & \text { on euro loans } \
\text { Canadian firm } & 5 \% & 5.5 \% \mathrm{a} \
\text { Freneh firm } & 6 \% & 5.5 \%
\end{array}$
The Canadian firm wants to borrow in euros and the French firm wants to borrow in Canadian dollars.
-What will be the annual GROSS interest payment of firm A to the swap bank? (where "GROSS" means that it does not take into account the payment made by the swap bank to firm A on the loan that firm A made to the swap bank)

Accepted Answer

A)  £66,000 
B)  £76,000 
C)  $72,000 
D)  $216,000 
A)  £66,000 
B)  £76,000 
C)  $72,000 
D)  $216,000

Question 5

Some of the risks that a swap dealer confronts are "basis risk" and "sovereign risk." They are defined as:

Accepted Answer

A)  "basis risk refers" to the probability that a country will impose exchange restrictions on a currency involved in a swap, and "sovereign risk refers" to a situation in which the floating rates of the two counterparties are not pegged to the same index. 
B)  "basis risk refers" to a situation in which the floating rates of the two counterparties are not pegged to the same index and "sovereign risk" refers to the probability that a country will impose exchange restrictions on a currency involved in a swap. 
C)  "basis risk" refers to interest rate changing unfavorably before the swap bank can lay off to an opposing counterparty the other side of an interest rate swap entered into with a counterparty, and "sovereign risk" refers to the probability that a country will impose exchange restrictions on a currency involved in a swap. 
D)  "basis risk" refers to the risk of fluctuating exchange rates, and "sovereign risk refers" to a situation in which the floating rates of the two counterparties are not pegged to the same index. 
A)  "basis risk refers" to the probability that a country will impose exchange restrictions on a currency involved in a swap, and "sovereign risk refers" to a situation in which the floating rates of the two counterparties are not pegged to the same index. 
B)  "basis risk refers" to a situation in which the floating rates of the two counterparties are not pegged to the same index and "sovereign risk" refers to the probability that a country will impose exchange restrictions on a currency involved in a swap. 
C)  "basis risk" refers to interest rate changing unfavorably before the swap bank can lay off to an opposing counterparty the other side of an interest rate swap entered into with a counterparty, and "sovereign risk" refers to the probability that a country will impose exchange restrictions on a currency involved in a swap. 
D)  "basis risk" refers to the risk of fluctuating exchange rates, and "sovereign risk refers" to a situation in which the floating rates of the two counterparties are not pegged to the same index.

Question 6

$\begin{array}{lcc} 
&\text { Canadian interest rate }&\text {french interest rate }\
& \text { on CS loans } & \text { on euro loans } \
\text { Canadian firm } & 5 \% & 5.5 \% \mathrm{a} \
\text { Freneh firm } & 6 \% & 5.5 \%
\end{array}$
The Canadian firm wants to borrow in euros and the French firm wants to borrow in Canadian dollars.
-Which firms will benefit from a currency swap?

Accepted Answer

A)  Neither firm. 
B)  The Canadian firm only. 
C)  Both firms. 
D)  Need more information. 
A)  Neither firm. 
B)  The Canadian firm only. 
C)  Both firms. 
D)  Need more information.

Question 7

Which of the following is NOT true about swap banks?

Accepted Answer

A)  A swap bank can be an international commercial bank. 
B)  A swap bank can be an investment bank. 
C)  A swap bank can be a central bank. 
D)  A swap bank can be an independent operator. 
A)  A swap bank can be an international commercial bank. 
B)  A swap bank can be an investment bank. 
C)  A swap bank can be a central bank. 
D)  A swap bank can be an independent operator.

Which of the following swaps are also knows as "plain vanilla" swaps?

Suppose ABC Investment Banker,Ltd.is quoting swap rates as follows: 7.50 - 7.85 percent annually against six-month dollar LIBOR for dollars,and 11.00 - 11.30 percent annually against six-month dollar LIBOR for British pound sterling.ABC would enter into a $/£ currency swap in which:

Some of the risks that a swap dealer confronts are "basis risk" and "sovereign risk." They are defined as:

Canadian interest rate french interest rate on CS loans on euro loans Canadian firm 5\% 5.5\% Freneh firm 6\% 5.5\% The Canadian firm wants to borrow in euros and the French firm wants to borrow in Canadian dollars. -Which firms will benefit from a currency swap?

Which of the following is NOT true about swap banks?

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

International Banking and Money Market

International Bond Market

International Equity Markets

Futures and Options on Foreign Exchange

International Portfolio Investment

Management of Economic Exposure

Management of Transaction Exposure

Management of Translation Exposure

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

Exports and Imports

International Tax Environment

Corporate Governance Around the World

Filters

Exam 10: Interest Rate and Currency Swaps

Which of the following swaps are also knows as "plain vanilla" swaps?

Suppose ABC Investment Banker,Ltd.is quoting swap rates as follows: 7.50 - 7.85 percent annually against six-month dollar LIBOR for dollars,and 11.00 - 11.30 percent annually against six-month dollar LIBOR for British pound sterling.ABC would enter into a $/£ currency swap in which:

Some of the risks that a swap dealer confronts are "basis risk" and "sovereign risk." They are defined as:

Canadian interest rate french interest rate on CS loans on euro loans Canadian firm 5\% 5.5\% Freneh firm 6\% 5.5\% The Canadian firm wants to borrow in euros and the French firm wants to borrow in Canadian dollars. -Which firms will benefit from a currency swap?

Which of the following is NOT true about swap banks?

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

International Banking and Money Market

International Bond Market

International Equity Markets

Futures and Options on Foreign Exchange

International Portfolio Investment

Management of Economic Exposure

Management of Transaction Exposure

Management of Translation Exposure

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

Exports and Imports

International Tax Environment

Corporate Governance Around the World

Filters