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

答案和详解如下：

16．No Errors Printing has entered into a "plain-vanilla" interest rate swap on $1,000,000 notional principal. No Errors receives a fixed rate of 5.5 percent on payments that occur at quarterly intervals. Platteville Investments, a swap broker, negotiates with another firm, Perfect Bid, to take the pay-fixed side of the swap. The floating rate payment is based on LIBOR (currently at 6.0 percent). Because of the current interest rate environment, No Errors expects to pay a net amount at the next settlement date and has created a reserve to cover the cash outlay. At the time of the next payment (due in exactly one quarter), the reserve balance is $1,000. To fulfill its obligations under the swap, No Errors will need approximately how much additional cash?

A)   $250.

B)   $0.

C)   No Errors will receive $250.

D)   $667.

The correct answer was A)

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.

Here, Floating Rate Payment = (0.06 - 0.055) × (90 / 360) × 1,000,000 = $1,250. Since the result is positive, No Errors will pay this amount. Since the reserve balance is $1,000, No Errors needs an additional $250.

17．In a plain vanilla interest rate swap:

A)   each party pays a fixed rate of interest on a notional amount.

B)   one party pays a floating rate and the other pays a fixed rate, both based on the notional amount.

C)   payments equal to the notional principal amount are exchanged at the initiation of the swap.

D)   each party makes a payment on the settlement dates.

The correct answer was B)

A plain vanilla swap is a fixed-for-floating swap.

18．A swap in which one party pays a fixed rate, one party pays a floating rate, and only a net payment is made on the settlement dates is referred to as a:

A)   straight swap.

B)   currencies swap.

C)   plain vanilla swap.

D)   net swap.

The correct answer was C)

A swap in which one party pays a fixed rate, one party pays a floating rate, and only a net payment is made on the settlement dates is referred to as a plain vanilla swap.

19．Which of the following statements regarding a plain vanilla swap is FALSE?

A)   The notional principal amounts are exchanged at contract initiation and at the termination of the swap.

B)   Only a net payment is made on each settlement date.

C)   One party pays a floating rate and one party pays a fixed rate.

D)   If interest rates decrease, the swap has a negative value to the fixed rate payer.

The correct answer was A)

There is no exchange of the principal amount at the initiation or termination of a plain vanilla swap.