Question 1

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 B

Question 2

________ is a cash-settled, over-the-counter forward contract that allows a company to fix an interest rate to be applied to a specified future interest period on a notional principal amount.

Accepted Answer

A)  interest rate currency swap 
B)  dual currency bond 
C)  exchange of principal 
D)  forward rate agreement 
A)  interest rate currency swap 
B)  dual currency bond 
C)  exchange of principal 
D)  forward rate agreement D

Question 3

In a currency swap, the effective interest rate on the money raised is known as the

Accepted Answer

A)  notional principal 
B)  all-in cost 
C)  right of offset 
D)  yield to call 
A)  notional principal 
B)  all-in cost 
C)  right of offset 
D)  yield to call B

Question 4

The economic benefits associated with swaps may derive from

Accepted Answer

A)  legal restrictions on spot and forward foreign exchange transactions 
B)  different perceptions by investors of risk and creditworthiness of the two parties to the swap 
C)  appeal or acceptability of one borrower to a certain class of investor 
D)  all of the above 
A)  legal restrictions on spot and forward foreign exchange transactions 
B)  different perceptions by investors of risk and creditworthiness of the two parties to the swap 
C)  appeal or acceptability of one borrower to a certain class of investor 
D)  all of the above

Question 5

What is the maximum possible cost savings to Bevel from engaging in a currency swap with Axil?

Accepted Answer

A)  1% 
B)  75% 
C)  2% 
D)  1.25% 
A)  1% 
B)  75% 
C)  2% 
D)  1.25%

Question 6

Swaps provide a real economic benefit to the counterparties only if a barrier exists to prevent ______ from functioning fully.

Accepted Answer

A)  hedging 
B)  factoring 
C)  arbitrage 
D)  forfaiting 
A)  hedging 
B)  factoring 
C)  arbitrage 
D)  forfaiting

Question 7

__________ is a contract that fixes an interest rate today on a future loan or deposit

Accepted Answer

A)  inverse floater 
B)  step-up 
C)  step-down 
D)  forward forward 
A)  inverse floater 
B)  step-up 
C)  step-down 
D)  forward forward

Question 8

A currency swap is most similar in economic purpose to a

Accepted Answer

A)  basis swap 
B)  parent company loan 
C)  debt?equity swap 
D)  parallel loan 
A)  basis swap 
B)  parent company loan 
C)  debt?equity swap 
D)  parallel loan

Question 9

Suppose a U.S. corporation wants to secure fixed?rate funds in pounds in order to reduce its pound exposure, but is hampered in doing so because it is a relatively unknown credit in the British financial market. In contrast, a British company that is well established in its own country may desire floating?rate dollar financing, but is relatively unknown in the U.S. financial market. What is the most appropriate form of swap for these two parties?

Accepted Answer

A)  interest rate/currency swap 
B)  currency swap 
C)  interest rate swap 
D)  debt/equity swap 
A)  interest rate/currency swap 
B)  currency swap 
C)  interest rate swap 
D)  debt/equity swap

Question 10

In a _____ 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)  coupoon 
D)  basis 
A)  currency 
B)  interest rate 
C)  coupoon 
D)  basis

Question 11

A _________ future is a cash-settled futures contract for a three-month $1,000,000 eurodollar deposit that pays LIBOR.

Accepted Answer

A)  forward 
B)  eurodollar 
C)  forward rate agreement 
D)  currency swap 
A)  forward 
B)  eurodollar 
C)  forward rate agreement 
D)  currency swap

Question 12

How much would Y pay for its floating?rate funds?

Accepted Answer

A)  LIBOR ?.25% 
B)  LIBOR ?.50% 
C)  LIBOR 
D)  LIBOR + .5% 
A)  LIBOR ?.25% 
B)  LIBOR ?.50% 
C)  LIBOR 
D)  LIBOR + .5%

Question 13

Swaps are primarily of value because they permit firms to

Accepted Answer

A)  tap new capital markets 
B)  reduce risks 
C)  reduce taxes 
D)  a and b only 
A)  tap new capital markets 
B)  reduce risks 
C)  reduce taxes 
D)  a and b only

Question 14

How much would X pay for its fixed?rate funds?

Accepted Answer

A)  9.5% 
B)  10.0% 
C)  10.5% 
D)  10.75% 
A)  9.5% 
B)  10.0% 
C)  10.5% 
D)  10.75%

Question 15

A currency swap is equivalent to a

Accepted Answer

A)  currency option, with the exercise price equal to the current spot rate 
B)  long?dated 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)  long?dated 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 16

Suppose a bank charges .8% to arrange the swap and Axil and Bevel split the resulting cost savings. Then Axil will pay ??? for its floating?rate money and Bevel will pay ???? for its fixed?rate money.

Accepted Answer

A)  LIBOR ? .7%; 7.5% 
B)  LIBOR + .4%; 7.15% 
C)  LIBOR; 7.45% 
D)  LIBOR + .5%; 6.75% 
A)  LIBOR ? .7%; 7.5% 
B)  LIBOR + .4%; 7.15% 
C)  LIBOR; 7.45% 
D)  LIBOR + .5%; 6.75%

Question 17

In a __________ swaps, two parties exchange floating interest payments based on different reference rates.

Accepted Answer

A)  basis 
B)  coupon 
C)  notional 
D)  forward rate 
A)  basis 
B)  coupon 
C)  notional 
D)  forward rate

Question 18

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

Accepted Answer

A)  long?term capital markets are not well developed 
B)  long?term forward foreign exchange markets are absent 
C)  of high foreign taxes 
D)  a and b only 
A)  long?term capital markets are not well developed 
B)  long?term forward foreign exchange markets are absent 
C)  of high foreign taxes 
D)  a and b only

Question 19

The theoretical principal underlying the swap is termed the

Accepted Answer

A)  basis amount 
B)  swap differential 
C)  notional principal 
D)  arbitrage principal 
A)  basis amount 
B)  swap differential 
C)  notional principal 
D)  arbitrage principal

Question 20

What is the maximum possible cost savings to Axil from engaging in a currency swap with Bevel?

Accepted Answer

A)  1% 
B)  75% 
C)  2% 
D)  1.25% 
A)  1% 
B)  75% 
C)  2% 
D)  1.25%

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

________ is a cash-settled, over-the-counter forward contract that allows a company to fix an interest rate to be applied to a specified future interest period on a notional principal amount.

In a currency swap, the effective interest rate on the money raised is known as the

The economic benefits associated with swaps may derive from

What is the maximum possible cost savings to Bevel from engaging in a currency swap with Axil?

Swaps provide a real economic benefit to the counterparties only if a barrier exists to prevent ______ from functioning fully.

__________ is a contract that fixes an interest rate today on a future loan or deposit

A currency swap is most similar in economic purpose to a

In a _____ 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.

A _________ future is a cash-settled futures contract for a three-month $1,000,000 eurodollar deposit that pays LIBOR.

How much would Y pay for its floating?rate funds?

Swaps are primarily of value because they permit firms to

How much would X pay for its fixed?rate funds?

A currency swap is equivalent to a

Suppose a bank charges .8% to arrange the swap and Axil and Bevel split the resulting cost savings. Then Axil will pay ??? for its floating?rate money and Bevel will pay ???? for its fixed?rate money.

In a __________ swaps, two parties exchange floating interest payments based on different reference rates.

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

The theoretical principal underlying the swap is termed the

What is the maximum possible cost savings to Axil from engaging in a currency swap with Bevel?

Introduction: Multinational Enterprise and Multinational Financial Management

The Determination of Exchange Rates

The International Monetary System

Parity Conditions in International Finance and Currency Forecasting

The Balance of Payments and International Economic Linkages

The Foreign Exchange Market

Currency Futures and Options Markets

Measuring and Managing Translation and Transaction Exposure

Measuring and Managing Economic Exposure

Country Risk Analysis

International Financing and National Capital Markets

International Portfolio Investment

Capital Budgeting for the Multinational Corporation

Financing Foreign Trade

Managing the Multinational Financial System

Filters

Exam 8: Swaps and Interest Rate Derivatives

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

________ is a cash-settled, over-the-counter forward contract that allows a company to fix an interest rate to be applied to a specified future interest period on a notional principal amount.

In a currency swap, the effective interest rate on the money raised is known as the

The economic benefits associated with swaps may derive from

What is the maximum possible cost savings to Bevel from engaging in a currency swap with Axil?

Swaps provide a real economic benefit to the counterparties only if a barrier exists to prevent ______ from functioning fully.

__________ is a contract that fixes an interest rate today on a future loan or deposit

A currency swap is most similar in economic purpose to a

In a _____ 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.

A _________ future is a cash-settled futures contract for a three-month $1,000,000 eurodollar deposit that pays LIBOR.

How much would Y pay for its floating?rate funds?

Swaps are primarily of value because they permit firms to

How much would X pay for its fixed?rate funds?

A currency swap is equivalent to a

Suppose a bank charges .8% to arrange the swap and Axil and Bevel split the resulting cost savings. Then Axil will pay ??? for its floating?rate money and Bevel will pay ???? for its fixed?rate money.

In a __________ swaps, two parties exchange floating interest payments based on different reference rates.

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

The theoretical principal underlying the swap is termed the

What is the maximum possible cost savings to Axil from engaging in a currency swap with Bevel?

Introduction: Multinational Enterprise and Multinational Financial Management

The Determination of Exchange Rates

The International Monetary System

Parity Conditions in International Finance and Currency Forecasting

The Balance of Payments and International Economic Linkages

The Foreign Exchange Market

Currency Futures and Options Markets

Measuring and Managing Translation and Transaction Exposure

Measuring and Managing Economic Exposure

Country Risk Analysis

International Financing and National Capital Markets

International Portfolio Investment

Capital Budgeting for the Multinational Corporation

Financing Foreign Trade

Managing the Multinational Financial System

Filters

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