Question 1

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 E

Question 2

Currency swap volume is greater than equity swap volume.

Accepted Answer

A) True 
 B)False  True

Question 3

At the beginning of the life of the swap,the present values of the two stream of payments of each counterparty is the same.

Accepted Answer

A) True 
 B)False  True

Question 4

Which of the following is not a type of swap?

Accepted Answer

A) settlement swaps 
B) commodity swaps 
C) interest rate swaps 
D) equity swaps 
E) currency swaps 
A) settlement swaps 
B) commodity swaps 
C) interest rate swaps 
D) equity swaps 
E) currency swaps

Question 5

A swap can be terminated by having the party owing the greater amount make a cash payment.

Accepted Answer

A) True 
 B)False

Question 6

Like interest rate and currency swaps,equity swap payments are always positive.

Accepted Answer

A) True 
 B)False

Question 7

Find the approximate upcoming net payment on an equity swap in which party A pays the return on stock index 1 and party B pays the return on stock index 2.The notional principal is $25 million.Stock index 1 starts the period at 1500 and goes up to 1600 at the end of the period.Stock index 2 starts the period at 3500 and goes up to 3300 at the end of the period.

Accepted Answer

A) The party paying index 1 pays about $238,000 
B) The party paying index 2 pays about $238,000 
C) The party paying index 2 pays about $3.095 million 
D) The party paying index 1 pays about $25 million 
E) The party paying index 1 pays about $3.095 million 
A) The party paying index 1 pays about $238,000 
B) The party paying index 2 pays about $238,000 
C) The party paying index 2 pays about $3.095 million 
D) The party paying index 1 pays about $25 million 
E) The party paying index 1 pays about $3.095 million

Question 8

An equity swap with fixed interest payments has two payments remaining.The first occurs in 30 days and the second occurs in 210 days.The discount factors are 0.9934 (30 days)and 0.9528 (210 days).The upcoming fixed payment is at 4 percent and is based 180 days in a 360-day year.The equity index was at 1150 at the beginning of the period and is now at 1152.75.The notional principal is $60 million.Find the approximate value of the equity swap from the perspective of the party making the equity payment and receiving the fixed payment.

Accepted Answer

A) $143,478 
B) $642,000 
C) -$143,478 
D) -$642,000 
E) -$496,560 
A) $143,478 
B) $642,000 
C) -$143,478 
D) -$642,000 
E) -$496,560

Question 9

Find the net payment on an equity swap in which party A pays the return on a stock index and party B pays a fixed rate of 6 percent.The notional principal is $10 million.The stock index starts off at 1,000 and is at 1,055.15 at the end of the period.The interest payment is calculated based on 180 days in the period and 360 days in the year.

Accepted Answer

A) party B pays $851,500 
B) parry B pays $48,500 
C) party B pays $251,500 
D) party A pays $251,500 
E) party A pays $851,500 
A) party B pays $851,500 
B) parry B pays $48,500 
C) party B pays $251,500 
D) party A pays $251,500 
E) party A pays $851,500

Question 10

The present value of the series of dollar payments in a currency swap per $1 notional principal is $0.03.The present value of the series of euro payments in the same currency swap per €1 is €0.0225.The current exchange rate is $1.05 per euro.If the swap has a notional principal of $100 million and €105 million,find the market value of the swap from the perspective of the party paying euros and receiving dollars.

Accepted Answer

A) $519,375 
B) -$2,480,625 
C) $3,000,000 
D) -$3,000,000 
E) -$519,375 
A) $519,375 
B) -$2,480,625 
C) $3,000,000 
D) -$3,000,000 
E) -$519,375

Question 11

In an index amortizing swap,the notional principal increases throughout the life of the swap.

Accepted Answer

A) True 
 B)False

Question 12

A swap involving two floating rates is called a basis swap.

Accepted Answer

A) True 
 B)False

Question 13

Interest rate swaps can be used for all of the following purposes except:

Accepted Answer

A) to borrow at the prime rate 
B) to convert a fixed-rate loan into a floating-rate loan 
C) to convert a floating-rate loan into a fixed-rate loan 
D) to speculate on interest rates 
E) to hedge interest rate risk 
A) to borrow at the prime rate 
B) to convert a fixed-rate loan into a floating-rate loan 
C) to convert a floating-rate loan into a fixed-rate loan 
D) to speculate on interest rates 
E) to hedge interest rate risk

Question 14

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 principal of $50 million and party B pays Swiss francs at a fixed rate of 4 percent on notional principal 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 15

A currency swap without the exchange of notional principal is most likely to be used in what situation?

Accepted Answer

A) a company issuing a bond 
B) a company generating cash flows in a foreign currency 
C) a company arranging a loan 
D) a dealer trying to hedge a currency option 
E) none of the above 
A) a company issuing a bond 
B) a company generating cash flows in a foreign currency 
C) a company arranging a loan 
D) a dealer trying to hedge a currency option 
E) none of the above

Question 16

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 17

Use the information in problem 16 to find the fixed rate on an equity swap in which the stock index is at 2,000.

Accepted Answer

A) 5.9 percent 
B) 5 percent 
C) 6 percent 
D) 2.95 percent 
E) 3.5 percent 
A) 5.9 percent 
B) 5 percent 
C) 6 percent 
D) 2.95 percent 
E) 3.5 percent

Question 18

Find the upcoming net payment in a plain vanilla interest rate swap in which the fixed party pays 10 percent and the floating rate for the upcoming payment is 9.5 percent.The notional principal is $20 million and payments are based on the assumption of 180 days in the payment period and 360 days in a year.

Accepted Answer

A) fixed payer pays $1,950,000 
B) fixed payer pays $950,000 
C) floating payer pays $1 million 
D) floating payer pays $50,000 
E) fixed payer pays $50,000 
A) fixed payer pays $1,950,000 
B) fixed payer pays $950,000 
C) floating payer pays $1 million 
D) floating payer pays $50,000 
E) fixed payer pays $50,000

Question 19

Which of the following is not a way to terminate a swap:

Accepted Answer

A) the two counterparties cash settle the market value 
B) enter into an opposite swap with another counterparty 
C) hold the swap to its maturity date 
D) use a forward contract or option on the swap to enter into an offsetting swap 
E) borrow the notional principal and pay off the counterparty 
A) the two counterparties cash settle the market value 
B) enter into an opposite swap with another counterparty 
C) hold the swap to its maturity date 
D) use a forward contract or option on the swap to enter into an offsetting swap 
E) borrow the notional principal and pay off the counterparty

Question 20

In an interest rate swap,the upcoming floating payment will not be determined until the end of the current settlement period.

Accepted Answer

A) True 
 B)False

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

Currency swap volume is greater than equity swap volume.

At the beginning of the life of the swap,the present values of the two stream of payments of each counterparty is the same.

Which of the following is not a type of swap?

A swap can be terminated by having the party owing the greater amount make a cash payment.

Like interest rate and currency swaps,equity swap payments are always positive.

In an index amortizing swap,the notional principal increases throughout the life of the swap.

A swap involving two floating rates is called a basis swap.

Interest rate swaps can be used for all of the following purposes except:

A currency swap without the exchange of notional principal is most likely to be used in what situation?

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

Use the information in problem 16 to find the fixed rate on an equity swap in which the stock index is at 2,000.

Which of the following is not a way to terminate a swap:

In an interest rate swap,the upcoming floating payment will not be determined until the end of the current settlement period.

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

The 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 Applications

Managing Risk in an Organization

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Exam 12: Swaps

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

Currency swap volume is greater than equity swap volume.

At the beginning of the life of the swap,the present values of the two stream of payments of each counterparty is the same.

Which of the following is not a type of swap?

A swap can be terminated by having the party owing the greater amount make a cash payment.

Like interest rate and currency swaps,equity swap payments are always positive.

In an index amortizing swap,the notional principal increases throughout the life of the swap.

A swap involving two floating rates is called a basis swap.

Interest rate swaps can be used for all of the following purposes except:

A currency swap without the exchange of notional principal is most likely to be used in what situation?

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

Use the information in problem 16 to find the fixed rate on an equity swap in which the stock index is at 2,000.

Which of the following is not a way to terminate a swap:

In an interest rate swap,the upcoming floating payment will not be determined until the end of the current settlement period.

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

The 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 Applications

Managing Risk in an Organization

Filters