Interest Rate and Currency SwapsMultiple Choice Questions.doc

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1、Lecture 10 - Interest Rate and Currency Swaps14-1 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a webs

2、ite, in whole or part.Lecture 11 (Chapter 14) Interest Rate and Currency SwapsMultiple Choice Questions1. The term interest rate swap A. refers to a “single-currency interest rate swap“ shortened to “interest rate swap“. B. involves “counterparties“ who make a contractual agreement to exchange cash

3、flows at periodic intervals. C. can be “fixed-for-floating rate“ or “fixed-for-fixed rate“. D. all of the above2. Examples of “single-currency interest rate swap“ and “cross-currency interest rate swap“ are: A. fixed-for-floating rate interest rate swap, where one counterparty exchanges the interest

4、 payments of a floating- rate debt obligations for fixed-rate interest payments of the other counter party. B. fixed-for-fixed rate debt service (currency swap), where one counterparty exchanges the debt service obligations of a bond denominated in one currency for the debt service obligations of th

5、e other counter party denominated in another currency. C. both a) and b) D. none of the above3. The primary reasons for a counterparty to use a currency swap are A. to hedge and to speculate. B. to play in the futures and forward markets. C. to obtain debt financing in the swapped currency at an int

6、erest cost reduction brought about through comparative advantages each counterparty has in its national capital market, and the benefit of hedging long-run exchange rate exposure. D. both a) and b)4. The size of the swap market is A. measured by notational principal. B. over 7 trillion dollars. C. b

7、oth a) and b) D. none of the aboveLecture 10 - Interest Rate and Currency Swaps14-2 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded

8、, distributed, or posted on a website, in whole or part.5. Which combination of the following statements is true about a swap bank?A. (i) and (ii) B. (i), (ii) and (iii) C. (i), (ii), (iii) and (iv) D. (i), (ii), (iii), (iv) and (v)6. A swap bank A. can act as a broker, bringing together counterpart

9、ies to a swap. B. can act as a dealer, standing ready to buy and sell swaps. C. both a) and b) D. only sometimes a) but never ever b)7. In the swap market, which position potentially carries greater risks, broker or dealer? A. Broker B. Dealer C. They are the same swaps, therefore the same risks.8.

10、Suppose the quote for a five-year swap with semiannual payments is 8.508.60 percent. This means A. the swap bank will pay semiannual fixed-rate dollar payments of 8.50 percent against receiving six-month dollar LIBOR. B. the swap bank will receive semiannual fixed-rate dollar payments of 8.60 percen

11、t against paying six-month dollar LIBOR. C. both a) and b) D. none of the aboveLecture 10 - Interest Rate and Currency Swaps14-3 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may

12、not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.9. Suppose the quote for a five-year swap with semiannual payments is 8.508.60 percent. This means A. the swap bank will pay semiannual fixed-rate dollar payments of 8.60 percent against receiving si

13、x-month dollar LIBOR. B. the swap bank will receive semiannual fixed-rate dollar payments of 8.50 percent against paying six-month dollar LIBOR. C. if the swap bank is successful in getting counterparties to both legs of the swap at these prices, he will have an annual profit of ten basis points. D.

14、 none of the above10. A swap bank makes the following quotes for 5-year swaps and AAA-rated firms:A. The bank stands ready to pay $5.2% against receiving dollar LIBOR on 5-year loans. B. The bank stands ready to receive 7% against receiving dollar LIBOR on 5-year loans. C. The bank stands ready to p

15、ay 7% against receiving dollar LIBOR on 5-year loans. D. None of the above11. Suppose the quote for a five-year swap with semiannual payments is 8.508.60 percent in dollars and 6.606.80 percent in euro against six-month dollar LIBOR. This means A. the swap bank will enter into a currency swap in whi

16、ch it would pay semiannual fixed-rate dollar payments of 8.50 percent against receiving semiannual fixed-rate euro payments of 6.80. B. the swap bank will enter into a currency swap in which it would pay semiannual fixed-rate euro payments of 6.60 percent against receiving semiannual fixed-rate doll

17、ar payments of 8.60. C. both a) and b) D. none of the above12. An interest-only single currency interest rate swap A. is also known as a plain vanilla swap. B. is also known as an interest rate swap. C. is about as simple as swaps can get. D. all of the aboveLecture 10 - Interest Rate and Currency S

18、waps14-4 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.13. Company X and c

19、ompany Y have mirror-image financing needs (they both want to borrow equivalent amounts for the same amount of time. Company X has a AAA credit rating, but company Ys credit standing is considerably lower. A. Company X should demand most of the QSD in any swap with Y as compensation for default risk

20、. B. Since Y has a poor credit rating, it would not be a participant in the swap market. C. Company X should more readily agree to a swap involving Y if there is also a swap bank providing credit risk intermediation. D. both a) and c)14. A swap bank has identified two companies with mirror-image fin

21、ancing needs (they both want to borrow equivalent amounts for the same amount of time. Company X has agreed to one leg of the swap but company Y is “playing hard to get“. A. If the swap bank has already contracted one leg of the swap, they should be anxious to offer better terms to company Y to just

22、 get the deal done. B. The swap bank could just sell the company X side of the swap. C. Company X should lobby Y to “get on board“. D. Both a) and b)15. A swap bank has identified two companies with mirror-image financing needs (they both want to borrow equivalent amounts for the same amount of time

23、. Company X has agreed to one leg of the swap but company Y is “playing hard to get“. A. The swap bank could just sell the company X side of the swap. B. Company X should lobby Y to “get on board“. C. Company Y should calculate the QSD and subtract that from their best outside offer. D. None of the

24、aboveLecture 10 - Interest Rate and Currency Swaps14-5 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a

25、 website, in whole or part.16. Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow $10,000,000 fixed for 5 years. Their external borrowing opportunities are shown below:A swap bank proposes the following interest only swap: X will pay the swap bank annual payments o

26、n $10,000,000 with the coupon rate of LIBOR - 0.15%; in exchange the swap bank will pay to company X interest payments on $10,000,000 at a fixed rate of 9.90%. What is the value of this swap to company X? A. Company X will lose money on the deal. B. Company X will save 25 basis points per year on $1

27、0,000,000 = $25,000 per year. C. Company X will only break even on the deal. D. Company X will save 5 basis points per year on $10,000,000 = $5,000 per year.17. Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow $10,000,000 fixed for 5 years. Their external borrowi

28、ng opportunities are shown below:A swap bank proposes the following interest only swap: Y will pay the swap bank annual payments on $10,000,000 with a fixed rate of 9.90%. In exchange the swap bank will pay to company Y interest payments on $10,000,000 at LIBOR - 0.15%; What is the value of this swa

29、p to company Y? A. Company Y will save 15 basis points per year on $10,000,000 = $15,000 per year. B. Company Y will save 45 basis points per year on $10,000,000 = $45,000 per year. C. Company Y will save 5 basis points per year on $10,000,000 = $5,000 per year. D. Company Y will only break even on

30、the deal.Lecture 10 - Interest Rate and Currency Swaps14-6 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted

31、on a website, in whole or part.18. Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow $10,000,000 fixed for 5 years. Their external borrowing opportunities are shown below:A swap bank proposes the following interest only swap: X will pay the swap bank annual paymen

32、ts on $10,000,000 with the coupon rate of LIBOR - 0.15%; in exchange the swap bank will pay to company X interest payments on $10,000,000 at a fixed rate of 9.90%. Y will pay the swap bank interest payments on $10,000,000 at a fixed rate of 10.30% and the swap bank will pay Y annual payments on $10,

33、000,000 with the coupon rate of LIBOR - 0.15%.What is the value of this swap to the swap bank? A. The swap bank will lose money on the deal. B. The swap bank will earn 40 basis points per year on $10,000,000 = $40,000 per year. C. The swap bank will break even. D. None of the aboveLecture 10 - Inter

34、est Rate and Currency Swaps14-7 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or p

35、art.19. Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow $10,000,000 fixed for 5 years. Their external borrowing opportunities are shown below:A swap bank proposes the following interest only swap: X will pay the swap bank annual payments on $10,000,000 with the

36、coupon rate of LIBOR; in exchange the swap bank will pay to company X interest payments on $10,000,000 at a fixed rate of 10.05%. Y will pay the swap bank interest payments on $10,000,000 at a fixed rate of 10.30% and the swap bank will pay Y annual payments on $10,000,000 with the coupon rate of LI

37、BOR - 0.15%.What is the value of this swap to the swap bank? A. The swap bank will earn 40 basis points per year on $10,000,000 = $40,000 per year. B. The swap bank will earn 10 basis points per year on $10,000,000 = $10,000 per year. C. The swap bank will LOSE money. D. None of the aboveLecture 10

38、- Interest Rate and Currency Swaps14-8 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in who

39、le or part.20. Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow $10,000,000 fixed for 5 years. Their external borrowing opportunities are shown below:A swap bank is involved and quotes the following rates five-year dollar interest rate swaps at 10.05%-10.45% agai

40、nst LIBOR flat.Assume both X and Y agree to the swap banks terms.Fill in the values for A, B, C, D, E, B = 10.45%; C =10.05%; D = LIBOR; E = LIBOR; F = 12% B. A = 10%; B = 10.45%; C =10.05%; D = LIBOR; E = LIBOR; F = LIBOR + 1% C. A = 10%; B = 10.45%; C = LIBOR; D = LIBOR; E = 10.05%; F = LIBOR + 1%

41、 D. A = 10%; B = LIBOR; C = LIBOR; D = 10.45%; E = 10.05%; F = LIBOR + 1%Lecture 10 - Interest Rate and Currency Swaps14-9 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be

42、 copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.21. Company X wants to borrow $10,000,000 floating for 5 years. Company Y wants to borrow $10,000,000 fixed for 5 years. Their external borrowing opportunities are:Design a mutually beneficial interest onl

43、y swap for X and Y with a notational principal of $10 million by having appropriate values forA = Company Xs external borrowing rate B = Company Ys payment to X (rate) C = Company Xs payment to Y (rate) D = Company Ys external borrowing rateA. A = 10%; B = 11.75%; C = LIBOR - .25%; D = LIBOR + 1.5%

44、B. A = 10%; B = 10%; C = LIBOR - .25%; D = LIBOR + 1.5% C. A = LIBOR; B = 10%; C = LIBOR - .25%; D = 12% D. A = LIBOR; B = LIBOR; C = LIBOR - .25%; D = 12%Lecture 10 - Interest Rate and Currency Swaps14-10 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor u

45、se. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.22. Suppose ABC Investment Banker, Ltd. is quoting swap rates as follows: 7.50 - 7.85 annually against six-month dollar LI

46、BOR 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: Refer To: 14-21 A. it would pay annual fixed-rate dollar payments of 7.5% in return for receiving annual fixed-rate payments at 11.3% B. it

47、 will receive annual fixed-rate dollar payments at 7.85% against paying annual fixed-rate payments at 11% C. a) and b) D. none of the above23. Use the following information to calculate the quality spread differential (QSD):A. 0.50% B. 1.00% C. 1.50% D. 2.00%Lecture 10 - Interest Rate and Currency S

48、waps14-11 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.24. Company X want

49、s to borrow $10,000,000 floating for 5 years; company Y wants to borrow $10,000,000 fixed for 5 years. Their external borrowing opportunities are shown below:A swap bank is involved and quotes the following rates five-year dollar interest rate swaps at 10.05%-10.45% against LIBOR flat.Assume company Y has agreed, but company X will only agree to the swap if the bank offers better terms.What are the absolute best terms the bank can offer X, given that it alre