Reading 74: Swap Markets and Contracts - LOS b, (Part 3) ～

答案和详解如下：

11.123, Inc. has entered into a "plain-vanilla" interest rate swap on $10,000,000 notional principal. 123 company receives a fixed rate of 6.5 percent on payments that occur at monthly intervals. Platteville Investments, a swap broker, negotiates with another firm, PPS, to take the pay-fixed side of the swap. The floating rate payment is based on LIBOR (currently at 4.8 percent). At the time of the next payment (due in exactly one month),123, Inc. will:

A)   receive net payments of $42,500.

B)   receive net payments of $14,167.

C)   pay the dealer net payments of $14,167.

D)   pay the dealer net payments of $42,500.

The correct answer was B)

The net payment formula for the floating rate payer is:

Floating Rate Payment_t = (LIBOR_t-1 - Swap Fixed Rate) * (# days in term / 360) * Notional Principal

If the result is positive, the floating-rate payer owes a net payment and if the result is negative, then the floating-rate payer receives a net inflow. Note: We are assuming a 360 day year.

Floating Rate Payment = (0.048 - 0.065) * (30 / 360) * 10,000,000 = -$14,167.

Since the result is negative,123 Inc. will receive this amount.

12.DWR Services, Ltd., arranges a plain vanilla interest rate swap between RWDY Enterprises (pays fixed) and RED, Inc. (receives fixed). The swap has a notional value of $25,000,000 and 270 days between payments. LIBOR is currently at 7.0%. If at the time of the next payment (due in exactly 270 days), RWDY receives net payments of $93,750, the swap fixed rate is closest to:

A)   6.625%.

B)   6.500%.

C)   7.500%.

D)   7.375%.

The correct answer was B)

The net payment formula for the fixed-rate payer is:

Fixed Rate Payment_t = (Swap Fixed Rate - LIBOR_t-1) * (# days in term / 360) * Notional Principal

If the result is positive, the fixed-rate payer owes a net payment and if the result is negative, then the fixed-rate payer receives a net inflow. Note: We are assuming a 360 day year.

We can manipulate this equation to read:

Swap Fixed Rate = LIBOR_t-1 + [(Fixed Rate Payment / ( # days in term / 360 * Notional Principal)

Note: the Fixed Rate payment will have a negative sign because we are told that RWDY receives a net payment.

= 0.07 + [(-93,750 / (270 / 360 * 25,000,000) = 0.07 - 0.005 = 0.065, or 6.5%.

Note: We know that the Swap Fixed Rate will be less than the floating rate, or LIBOR, because RWDY receives a net payment.

13.XYZ, Inc. has entered into a "plain-vanilla" interest rate swap on $5,000,000 notional principal. XYZ company pays a fixed rate of 8.5% on payments that occur at 180-day intervals. Platteville Investments, a swap broker, negotiates with another firm, SSP, to take the receive-fixed side of the swap. The floating rate payment is based on LIBOR (currently at 7.2%). At the time of the next payment (due in exactly 180 days), XYZ company will:

A)   pay the dealer net payments of $65,000.

B)   pay the dealer net payments of $32,500.

C)   receive net payments of $32,500.

D)   pay the dealer net payments of $16,250.

The correct answer was B)

The net payment formula for the fixed-rate payer is:

Fixed Rate Payment_t = (Swap Fixed Rate - LIBOR_t-1) * (# days in term / 360) * Notional Principal

If the result is positive, the fixed-rate payer owes a net payment and if the result is negative, then the fixed-rate payer receives a net inflow. Note: We are assuming a 360 day year.

Fixed Rate Payment = (0.085 - 0.072) * (180 / 360) * 5,000,000 = $32,500.

Since the result is positive, XYZ owes this amount to the dealer, who will remit to SSP.

14.XYZ company has entered into a "plain-vanilla" interest rate swap on $1,000,000 notional principal. XYZ company pays a fixed rate of 8 percent on payments that occur at 90-day intervals. Six payments remain with the next one due in exactly 90 days. On the other side of the swap, XYZ company receives payments based on the LIBOR rate. Describe the transaction that occurs between XYZ company and the dealer at the end of the first period if the appropriate LIBOR rate is 8.8 percent.

A)   Dealer receives $2,000.

B)   XYZ company receives $2,000.

C)   XYZ company pays dealer $22,000.

D)   Dealer pays XYZ company $20,000.

The correct answer was B)

XYZ company owes the dealer ($1,000,000)(.08)(90/360) = $20,000. The dealer owes XYZ company ($1,000,000)(.088)(90/360) = $22,000. Net: The dealer pays XYZ company $22,000 - $20,000 = $2,000

15．Currency swap markets consist of transactions in:

A)   spot markets only.

B)   both spot and forward contracts.

C)   bond and stock markets.

D)   the forward market only.

The correct answer was B)

In this explanation, Euro is used to represent foreign currency. In a currency swap, one counterparty (D) holds dollars and wants Euros.  The other counterparty (E) holds Euros and wants dollars.  They decide to swap their currency positions at the current spot exchange rate.  The counterparties exchange the full notional principal at the onset of the swap.  Then, on each settlement date, one party pays a fixed rate of interest on the foreign currency received, and the other party pays a floating rate on the dollars received.  Interest payments are not netted. Generally, the variable interest rate on the dollar borrowings is determined at the beginning of the settlement period and paid at the end of the settlement period.  At the conclusion of the swap, the notional currencies are again exchanged. Thus, currency swaps involved transactions in both the spot and forward (future) markets. A fixed-for-fixed currency swap is equivalent to a portfolio of foreign exchange forward contracts (both parties need to deliver currency in the future).