Question 1

Between 2001 and 2004 the phenomenal growth in the use of swap markets has been a rate of over ________ per year.

Accepted Answer

A)  100% 
B)  80% 
C)  50% 
D)  33% 
A)  100% 
B)  80% 
C)  50% 
D)  33% D

Question 2

Suppose Siemens Corporation would like to borrow fixed-rate yen and can borrow them at 4.5% or floating-rate dollars at LIBOR + 0.25%.The Singapore Development Bank would like to borrow floating-rate dollars and can borrow fixed-rate yen at 4.9% or floating-rate dollars at LIBOR + 0.8%.What is the range of possible cost savings that Siemens can realize through an interest rate/currency swap with Singapore?

Accepted Answer

Given the differences in rates between the two markets,the two parties can achieve a combined 15 basis point savings through Siemens borrowing floating-rate dollars at LIBOR + 0.25% and Singapore Development Bank borrowing fixed-rate yen at 4.9% and then swapping the proceeds.Siemens would be able to borrow fixed-rate yen at 4.35% if all these savings were passed along to it in the swap.This could be done by Siemens providing Singapore with floating-rate dollars at LIBOR + 0.25%,saving Singapore 0.55%,which then passed these savings along to Siemens by swapping the fixed-rate yen at 4.9% - 0.55% = 4.35%.Thus,the potential savings to Siemens range from 0 to 0.15%.

Question 3

Which one of the following statements is most accurate about financial markets that provide swaps today?

Accepted Answer

A)  No longer are corporations tied to the financial markets of their country of residence. 
B)  Banks do not like swaps because the associated cash flows are just like those of bonds. 
C)  The result is that some companies have more difficulty is issuing debt in one currency that in other currencies. 
D)  Because the cash flows of swaps are not like the cash flows of bonds, banks find it easy to offset their exposures in long-term forward contracts. 
A)  No longer are corporations tied to the financial markets of their country of residence. 
B)  Banks do not like swaps because the associated cash flows are just like those of bonds. 
C)  The result is that some companies have more difficulty is issuing debt in one currency that in other currencies. 
D)  Because the cash flows of swaps are not like the cash flows of bonds, banks find it easy to offset their exposures in long-term forward contracts. A

Question 4

If the world capital market were fully integrated,the incentive to swap would be ________ because ________ arbitrage opportunities would exist.

Accepted Answer

A)  increased; more 
B)  reduced; fewer 
C)  increased; fewer 
D)  reduced; more 
A)  increased; more 
B)  reduced; fewer 
C)  increased; fewer 
D)  reduced; more

Question 5

A currency swap is equivalent to a

Accepted Answer

A)  currency option, with the exercise price equal to the current spot rate. 
B)  longdated forward foreign exchange contract, where the forward rate is the current spot rate. 
C)  interest rate swap, where the basis is the differential between the fixed and floating interest rates. 
D)  short term currency futures contract. 
A)  currency option, with the exercise price equal to the current spot rate. 
B)  longdated forward foreign exchange contract, where the forward rate is the current spot rate. 
C)  interest rate swap, where the basis is the differential between the fixed and floating interest rates. 
D)  short term currency futures contract.

Question 6

Why are swap market transactions costs lower than transaction costs in the long term forward market?

Accepted Answer

The costs are lower because th

Question 7

In a(n)________ swap,one party pays a fixed rate calculated at the time off trade as a spread to a particular Treasury bond,and the other sides pays a floating rate.

Accepted Answer

A)  currency 
B)  interest rate 
C)  coupon 
D)  basis 
A)  currency 
B)  interest rate 
C)  coupon 
D)  basis

Question 8

Describe how a back-to-back loan is used.

Accepted Answer

Back-to-back loans,often referred to as

Question 9

The ________ is a trade organization that offers controls on the legal aspects of swaps.

Accepted Answer

A)  Options Clearing Corporation 
B)  Chicago Board Options Exchange 
C)  Securities Exchange Commission 
D)  International Swap and Derivatives Association 
A)  Options Clearing Corporation 
B)  Chicago Board Options Exchange 
C)  Securities Exchange Commission 
D)  International Swap and Derivatives Association

Question 10

What are some factors that underlie the economic benefits of swaps?

Accepted Answer

For swaps to provide economic benefits,t

Question 11

Suppose Ace International Company decides at t+18 to use a six-month contract to hedge the t + 24 receipt of yen from Kensui Incorporated.Six-month interest rates (annualized)at t + 18 are 5.9% in dollars and 2.1% in yen.The 6 month forward rate at time t + 18 is ¥128.58.With this hedge in place,what fixed dollar amount would Ace have paid and received at time t + 24?

Accepted Answer

Ace will pay out $2.9 million

Question 12

The nature of swap contracts is usually based on the best practices suggested by the ________,

Accepted Answer

A)  Options Clearing Corporation 
B)  Chicago Board Options Exchange 
C)  International Swap and Derivatives Association 
D)  Securities Exchange Commission 
A)  Options Clearing Corporation 
B)  Chicago Board Options Exchange 
C)  International Swap and Derivatives Association 
D)  Securities Exchange Commission

Question 13

What is the name of the clause in a back-to-back loan that stipulates that if one party defaults on a payment,the other party can withhold corresponding payments?

Accepted Answer

A)  right of offset 
B)  topping-off 
C)  all-in-cost 
D)  with-recourse 
A)  right of offset 
B)  topping-off 
C)  all-in-cost 
D)  with-recourse

Question 14

A currency swap is equivalent to a

Accepted Answer

A)  currency option, with the exercise price equal to the current spot rate. 
B)  longdated forward foreign exchange contract, where the forward rate is the current spot rate. 
C)  interest rate swap, where the basis is the differential between the fixed and floating interest rates. 
D)  short-term currency futures contract. 
A)  currency option, with the exercise price equal to the current spot rate. 
B)  longdated forward foreign exchange contract, where the forward rate is the current spot rate. 
C)  interest rate swap, where the basis is the differential between the fixed and floating interest rates. 
D)  short-term currency futures contract.

Question 15

The ________ is the amount of basis points added to the yield to maturity on a government bond corresponding to that maturity to get the fixed interest rate of an interest rate swap.

Accepted Answer

A)  swap spread 
B)  all-in cost 
C)  right of offset 
D)  yield to call 
A)  swap spread 
B)  all-in cost 
C)  right of offset 
D)  yield to call

Question 16

Swaps are primarily of value because they permit firms to

Accepted Answer

A)  tap new capital markets. 
B)  reduce risks. 
C)  reduce taxes. 
D)  both A and B 
A)  tap new capital markets. 
B)  reduce risks. 
C)  reduce taxes. 
D)  both A and B

Question 17

A(n)________ allows a multinational corporation to change the currency of denomination of its debts.

Accepted Answer

A)  interest rate swap 
B)  currency swap 
C)  currency option contract 
D)  currency future contract 
A)  interest rate swap 
B)  currency swap 
C)  currency option contract 
D)  currency future contract

Question 18

Currency swaps are often used to provide long-term financing in foreign currencies because

Accepted Answer

A)  longterm capital markets are not well developed. 
B)  longterm forward foreign exchange markets are absent. 
C)  of high foreign taxes. 
D)  both A and B 
A)  longterm capital markets are not well developed. 
B)  longterm forward foreign exchange markets are absent. 
C)  of high foreign taxes. 
D)  both A and B

Question 19

In a(n)________ swap,one party pays a fixed rate calculated at the time of the trade as a spread to a particular Treasury bond,and the other sides pays a floating rate.

Accepted Answer

A)  currency 
B)  interest rate 
C)  coupon 
D)  basis 
A)  currency 
B)  interest rate 
C)  coupon 
D)  basis

Question 20

Most parallel loans include a ________ clause that requires additional advances or repayments of principal under special conditions.

Accepted Answer

A)  notional principal 
B)  topping-up 
C)  right of offset 
D)  yield to call 
A)  notional principal 
B)  topping-up 
C)  right of offset 
D)  yield to call

Between 2001 and 2004 the phenomenal growth in the use of swap markets has been a rate of over ________ per year.

Which one of the following statements is most accurate about financial markets that provide swaps today?

If the world capital market were fully integrated,the incentive to swap would be because arbitrage opportunities would exist.

A currency swap is equivalent to a

Why are swap market transactions costs lower than transaction costs in the long term forward market?

In a(n)________ swap,one party pays a fixed rate calculated at the time off trade as a spread to a particular Treasury bond,and the other sides pays a floating rate.

Describe how a back-to-back loan is used.

The ________ is a trade organization that offers controls on the legal aspects of swaps.

What are some factors that underlie the economic benefits of swaps?

The nature of swap contracts is usually based on the best practices suggested by the ________,

What is the name of the clause in a back-to-back loan that stipulates that if one party defaults on a payment,the other party can withhold corresponding payments?

A currency swap is equivalent to a

The ________ is the amount of basis points added to the yield to maturity on a government bond corresponding to that maturity to get the fixed interest rate of an interest rate swap.

Swaps are primarily of value because they permit firms to

A(n)________ allows a multinational corporation to change the currency of denomination of its debts.

Currency swaps are often used to provide long-term financing in foreign currencies because

In a(n)________ swap,one party pays a fixed rate calculated at the time of the trade as a spread to a particular Treasury bond,and the other sides pays a floating rate.

Most parallel loans include a ________ clause that requires additional advances or repayments of principal under special conditions.

Globalization and the Multinational Corporation

The Foreign Exchange Market

Forward Markets and Transaction Exchange Risk

The Balance of Payments

Exchange Rate Systems

Interest Rate Parity

Speculation and Risk in the Foreign Exchange Market

Purchasing Power Parity and Real Exchange Rates

Measuring and Managing Real Exchange Risk

Exchange Rate Determination and Forecasting

International Debt Financing

International Equity Financing

International Capital Market Equilibrium

Country and Political Risk

International Capital Budgeting

Additional Topics in International Capital Budgeting

Risk Management and the Foreign Currency Hedging Decision

Financing International Trade

Managing Net Working Capital

Foreign Currency Futures and Options

Filters

Exam 21: Interest Rates and Foreign Currency Swaps

Between 2001 and 2004 the phenomenal growth in the use of swap markets has been a rate of over ________ per year.

Which one of the following statements is most accurate about financial markets that provide swaps today?

If the world capital market were fully integrated,the incentive to swap would be ________ because ________ arbitrage opportunities would exist.

A currency swap is equivalent to a

Why are swap market transactions costs lower than transaction costs in the long term forward market?

In a(n)________ swap,one party pays a fixed rate calculated at the time off trade as a spread to a particular Treasury bond,and the other sides pays a floating rate.

Describe how a back-to-back loan is used.

The ________ is a trade organization that offers controls on the legal aspects of swaps.

What are some factors that underlie the economic benefits of swaps?

The nature of swap contracts is usually based on the best practices suggested by the ________,

What is the name of the clause in a back-to-back loan that stipulates that if one party defaults on a payment,the other party can withhold corresponding payments?

A currency swap is equivalent to a

The ________ is the amount of basis points added to the yield to maturity on a government bond corresponding to that maturity to get the fixed interest rate of an interest rate swap.

Swaps are primarily of value because they permit firms to

A(n)________ allows a multinational corporation to change the currency of denomination of its debts.

Currency swaps are often used to provide long-term financing in foreign currencies because

In a(n)________ swap,one party pays a fixed rate calculated at the time of the trade as a spread to a particular Treasury bond,and the other sides pays a floating rate.

Most parallel loans include a ________ clause that requires additional advances or repayments of principal under special conditions.

Globalization and the Multinational Corporation

The Foreign Exchange Market

Forward Markets and Transaction Exchange Risk

The Balance of Payments

Exchange Rate Systems

Interest Rate Parity

Speculation and Risk in the Foreign Exchange Market

Purchasing Power Parity and Real Exchange Rates

Measuring and Managing Real Exchange Risk

Exchange Rate Determination and Forecasting

International Debt Financing

International Equity Financing

International Capital Market Equilibrium

Country and Political Risk

International Capital Budgeting

Additional Topics in International Capital Budgeting

Risk Management and the Foreign Currency Hedging Decision

Financing International Trade

Managing Net Working Capital

Foreign Currency Futures and Options

Filters

If the world capital market were fully integrated,the incentive to swap would be because arbitrage opportunities would exist.