Question 1

A company that borrows at a floating rate and uses a swap to convert into a fixed rate is assuming some credit risk.

Accepted Answer

A) True 
 B)False  True

Question 2

Swap payments typically involve adjusting for the fraction of the year in some fashion. This adjustment is known as

Accepted Answer

A)  the compounding convention 
B)  the accrual period 
C)  the fraction convention 
D)  the money market convention 
E)  the payment period 
A)  the compounding convention 
B)  the accrual period 
C)  the fraction convention 
D)  the money market convention 
E)  the payment period B

Question 3

Find the fixed rate on a plain vanilla interest rate swap with payments every 180 days (assume a 360-day year) for one year. The prices of Eurodollar zero coupon bonds are 0.9756 (180 days) and 0.9434 (360 days).

Accepted Answer

A)  5.9 percent 
B)  5 percent 
C)  6 percent 
D)  5.5 percent 
E)  2.95 percent 
A)  5.9 percent 
B)  5 percent 
C)  6 percent 
D)  5.5 percent 
E)  2.95 percent A

Question 4

To determine the fixed rate on a swap, you would

Accepted Answer

A)  use put-call parity 
B)  price it as the issuance of a fixed rate bond and purchase of a floating rate bond or vice versa 
C)  use the same fixed rate as that of a zero coupon bond of equivalent maturity 
D)  use the continuously compounded rate for the shortest maturity bond 
E)  none of the above 
A)  use put-call parity 
B)  price it as the issuance of a fixed rate bond and purchase of a floating rate bond or vice versa 
C)  use the same fixed rate as that of a zero coupon bond of equivalent maturity 
D)  use the continuously compounded rate for the shortest maturity bond 
E)  none of the above

Question 5

Find the upcoming payment interest payments in a currency swap in which party A pays U. S. dollars at a fixed rate of 5 percent on notional amount of $50 million and party B pays Swiss francs at a fixed rate of 4 percent on notional amount of SF35 million. Payments are annual under the assumption of 360 days in a year, and there is no netting.

Accepted Answer

A)  party A pays $2,500,000, and party B pays SF1,400,000 
B)  party A pays SF1,400,000, and party B pays $2,500,000 
C)  party A pays SF1,750,000, and party B pays SF1,400,000 
D)  party A pays $2,500,000, and party B pays $2,000,000 
E)  party A pays $50 million, and party B pays SF35 million 
A)  party A pays $2,500,000, and party B pays SF1,400,000 
B)  party A pays SF1,400,000, and party B pays $2,500,000 
C)  party A pays SF1,750,000, and party B pays SF1,400,000 
D)  party A pays $2,500,000, and party B pays $2,000,000 
E)  party A pays $50 million, and party B pays SF35 million

Question 6

A currency swap with no notional amount can be used to synthetically convert a bond issued in one currency into a bond issued in another currency.

Accepted Answer

A) True 
 B)False

Question 7

The fixed rates on a currency swap are the same as the fixed rates on plain vanilla interest rate swaps in the respective currencies.

Accepted Answer

A) True 
 B)False

Question 8

Consider a swap to pay currency A floating and receive currency B floating. What type of swap would be combined with this swap to produce a swap to produce a plain vanilla swap in currency B.

Accepted Answer

A)  pay currency B floating, receive currency A fixed 
B)  pay currency B fixed, receive currency A floating 
C)  pay currency B fixed, receive currency A fixed 
D)  pay currency B floating, receive currency A floating 
E)  none of the above 
A)  pay currency B floating, receive currency A fixed 
B)  pay currency B fixed, receive currency A floating 
C)  pay currency B fixed, receive currency A fixed 
D)  pay currency B floating, receive currency A floating 
E)  none of the above

Question 9

An interest rate swap is a special case of a currency swap with both currencies being the same.

Accepted Answer

A) True 
 B)False

Question 10

Currency swaps can be viewed as a pair of bonds with each bond denominated in a different currency.

Accepted Answer

A) True 
 B)False

Question 11

Currency swap volume is greater than equity swap volume.

Accepted Answer

A) True 
 B)False

Question 12

The value of a pay-fixed, receive floating interest rate swap is found as the value of a

Accepted Answer

A)  floating-rate bond times the value of a fixed-rate bond. 
B)  floating-rate bond plus the value of a fixed-rate bond. 
C)  floating-rate bond minus the value of another floating-rate bond. 
D)  fixed-rate bond minus the value of another fixed-rate bond. 
E)  floating-rate bond minus the value of a fixed-rate bond. 
A)  floating-rate bond times the value of a fixed-rate bond. 
B)  floating-rate bond plus the value of a fixed-rate bond. 
C)  floating-rate bond minus the value of another floating-rate bond. 
D)  fixed-rate bond minus the value of another fixed-rate bond. 
E)  floating-rate bond minus the value of a fixed-rate bond.

Question 13

An interest rate swap with both sides paying a floating rate is called a

Accepted Answer

A)  plain vanilla swap 
B)  two-way swap 
C)  floating swap 
D)  spread swap 
E)  basis swap 
A)  plain vanilla swap 
B)  two-way swap 
C)  floating swap 
D)  spread swap 
E)  basis swap

Question 14

Which of the following distinguishes equity swaps from currency swaps?

Accepted Answer

A)  equity swap payments are always hedged 
B)  equity swap payments are made on the first day of the month 
C)  equity swap payments can be negative 
D)  equity swap payments have more credit risk 
E)  none of the above 
A)  equity swap payments are always hedged 
B)  equity swap payments are made on the first day of the month 
C)  equity swap payments can be negative 
D)  equity swap payments have more credit risk 
E)  none of the above

Question 15

If a swap is effectively terminated by entering into the opposite swap with another counterparty, the credit risk will be eliminated.

Accepted Answer

A) True 
 B)False

Question 16

The value of a pay-fixed, receive-floating interest rate swap is found as the value of a

Accepted Answer

A)  floating-rate bond minus the value of a fixed-rate bond. 
B)  fixed-rate bond minus the value of a floating-rate bond. 
C)  floating-rate bond minus the value of another floating-rate bond. 
D)  fixed-rate bond minus the value of another fixed-rate bond. 
E)  none of the above correctly identify how this value is found. 
A)  floating-rate bond minus the value of a fixed-rate bond. 
B)  fixed-rate bond minus the value of a floating-rate bond. 
C)  floating-rate bond minus the value of another floating-rate bond. 
D)  fixed-rate bond minus the value of another fixed-rate bond. 
E)  none of the above correctly identify how this value is found.

Question 17

Interest rate swap volume is greater than currency swap volume because virtually ever business is exposed to interest rate risk.

Accepted Answer

A) True 
 B)False

Question 18

Equity swaps can be used for all of the following except:

Accepted Answer

A)  to synthetically buy stock 
B)  to synthetically sell stock 
C)  to convert dividends into capital gains 
D)  to synthetically re-align an equity portfolio 
E)  none of the above 
A)  to synthetically buy stock 
B)  to synthetically sell stock 
C)  to convert dividends into capital gains 
D)  to synthetically re-align an equity portfolio 
E)  none of the above

Question 19

Which of the following statements about diff swaps is true?

Accepted Answer

A)  they involve interest payments in separate currencies 
B)  they are based on the difference between interest rates in two countries 
C)  they are based on the difference between interest rates of different maturities 
D)  the notional amount reduces throughout the life of the swap 
E)  the notional amount increases throughout the life of the swap 
A)  they involve interest payments in separate currencies 
B)  they are based on the difference between interest rates in two countries 
C)  they are based on the difference between interest rates of different maturities 
D)  the notional amount reduces throughout the life of the swap 
E)  the notional amount increases throughout the life of the swap

Question 20

The most basic and common type of swap is called

Accepted Answer

A)  basis swap 
B)  plain vanilla swap 
C)  plain paper swap 
D)  commercial swap 
E)  bond swap 
A)  basis swap 
B)  plain vanilla swap 
C)  plain paper swap 
D)  commercial swap 
E)  bond swap

A company that borrows at a floating rate and uses a swap to convert into a fixed rate is assuming some credit risk.

Swap payments typically involve adjusting for the fraction of the year in some fashion. This adjustment is known as

Find the fixed rate on a plain vanilla interest rate swap with payments every 180 days (assume a 360-day year) for one year. The prices of Eurodollar zero coupon bonds are 0.9756 (180 days) and 0.9434 (360 days).

To determine the fixed rate on a swap, you would

A currency swap with no notional amount can be used to synthetically convert a bond issued in one currency into a bond issued in another currency.

The fixed rates on a currency swap are the same as the fixed rates on plain vanilla interest rate swaps in the respective currencies.

Consider a swap to pay currency A floating and receive currency B floating. What type of swap would be combined with this swap to produce a swap to produce a plain vanilla swap in currency B.

An interest rate swap is a special case of a currency swap with both currencies being the same.

Currency swaps can be viewed as a pair of bonds with each bond denominated in a different currency.

Currency swap volume is greater than equity swap volume.

The value of a pay-fixed, receive floating interest rate swap is found as the value of a

An interest rate swap with both sides paying a floating rate is called a

Which of the following distinguishes equity swaps from currency swaps?

If a swap is effectively terminated by entering into the opposite swap with another counterparty, the credit risk will be eliminated.

The value of a pay-fixed, receive-floating interest rate swap is found as the value of a

Interest rate swap volume is greater than currency swap volume because virtually ever business is exposed to interest rate risk.

Equity swaps can be used for all of the following except:

Which of the following statements about diff swaps is true?

The most basic and common type of swap is called

Introduction

Structure of Options Markets

Principles of Option Pricing

Option Pricing Models: The Binomial Model

Option Pricing Models: The Black-Scholes-Merton Model

Basic Option Strategies

Advanced Option Strategies

Structure of Forward and Futures Markets

Principles of Pricing Forwards, Futures and Options on Futures

Futures Arbitrage Strategies

Forward and Futures Hedging, Spread, and Target Strategies

Interest Rate Forwards and Options

Advanced Derivatives and Strategies

Financial Risk Management Techniques and Appplications

Managing Risk in an Organization

Filters

Exam 12: Swaps

A company that borrows at a floating rate and uses a swap to convert into a fixed rate is assuming some credit risk.

Swap payments typically involve adjusting for the fraction of the year in some fashion. This adjustment is known as

Find the fixed rate on a plain vanilla interest rate swap with payments every 180 days (assume a 360-day year) for one year. The prices of Eurodollar zero coupon bonds are 0.9756 (180 days) and 0.9434 (360 days).

To determine the fixed rate on a swap, you would

A currency swap with no notional amount can be used to synthetically convert a bond issued in one currency into a bond issued in another currency.

The fixed rates on a currency swap are the same as the fixed rates on plain vanilla interest rate swaps in the respective currencies.

Consider a swap to pay currency A floating and receive currency B floating. What type of swap would be combined with this swap to produce a swap to produce a plain vanilla swap in currency B.

An interest rate swap is a special case of a currency swap with both currencies being the same.

Currency swaps can be viewed as a pair of bonds with each bond denominated in a different currency.

Currency swap volume is greater than equity swap volume.

The value of a pay-fixed, receive floating interest rate swap is found as the value of a

An interest rate swap with both sides paying a floating rate is called a

Which of the following distinguishes equity swaps from currency swaps?

If a swap is effectively terminated by entering into the opposite swap with another counterparty, the credit risk will be eliminated.

The value of a pay-fixed, receive-floating interest rate swap is found as the value of a

Interest rate swap volume is greater than currency swap volume because virtually ever business is exposed to interest rate risk.

Equity swaps can be used for all of the following except:

Which of the following statements about diff swaps is true?

The most basic and common type of swap is called

Introduction

Structure of Options Markets

Principles of Option Pricing

Option Pricing Models: The Binomial Model

Option Pricing Models: The Black-Scholes-Merton Model

Basic Option Strategies

Advanced Option Strategies

Structure of Forward and Futures Markets

Principles of Pricing Forwards, Futures and Options on Futures

Futures Arbitrage Strategies

Forward and Futures Hedging, Spread, and Target Strategies

Interest Rate Forwards and Options

Advanced Derivatives and Strategies

Financial Risk Management Techniques and Appplications

Managing Risk in an Organization

Filters