Reading 61: Swap Markets and Contracts-LOS b, (Part 2) 习题精 label, style, center, interest, 2010

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Session 17: Derivative Investments: Options, Swaps, and Interest Rate and Credit Derivatives
Reading 61: Swap Markets and Contracts

LOS b, (Part 2): Explain the equivalence of a plain vanilla swap to a combination of an interest rate call and interest rate put.

 

 

 

Writing a series of interest-rate puts and buying a series of interest-rate calls, all at the same exercise rate, is equivalent to:

A) being the floating-rate payer in an interest rate swap.

B) a short position in a series of forward rate agreements.

C) being the fixed-rate payer in an interest rate swap.

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A short position in interest rate puts will have a negative payoff when rates are below the exercise rate; the calls will have positive payoffs when rates exceed the exercise rate. This mirrors the payoffs of the fixed-rate payer who will receive positive net payments when settlement rates are above the fixed rate.

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For a 1-year quarterly-pay swap, an equivalent position with short puts and long calls would involve:

A) put-call combinations expiring on each of the four settlement dates.

B) three put-call combinations on the last three settlement dates of the swap.

C) three put-call combinations expiring on the first three settlement dates of the swap.

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Interest rate options pay one period after exercise. Options expiring on settlements at t = 1,2,3, will mimic the uncertain swap payments at t = 2,3,4.

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The fixed-rate receiver in a plain vanilla interest rate swap has a position equivalent to a series of:

A) long interest-rate puts.

B) long interest-rate puts and short interest-rate calls.

C) short interest-puts and long interest-rate calls.

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The fixed-rate receiver has profits when short rates fall and losses when short rates rise, equivalent to buying puts and writing calls.

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The fixed-rate payer in an interest-rate swap has a position equivalent to a series of:

A) long interest-puts and short interest-rate calls.

B) long interest-rate puts and calls.

C) short interest-rate puts and long interest-rate calls.

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The fixed-rate payer has profits when short rates rise and losses when short rates fall, equivalent to writing puts and buying calls.

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The floating-rate payer in a simple interest-rate swap has a position that is equivalent to:

A) issuing a floating-rate bond and a series of long FRAs.

B) a series of short FRAs.

C) a series of long forward rate agreements (FRAs).

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The floating-rate payer has a liability/gain when rates increase/decrease above the fixed contract rate; the short position in an FRA has a liability/gain when rates increase/decrease above the contract rate.

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A plain vanilla interest-rate swap to the fixed-rate payer is equivalent to issuing a fixed-rate bond and:

A) selling a series of interest rate puts.

B) selling a series of interest rate calls.

C) buying a floating-rate bond.

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Paying fixed and receiving floating in a swap is equivalent to issuing a fixed-rate bond and investing the proceeds in a floating rate bond.

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Which of the following is equivalent to a plain vanilla receive-fixed interest rate swap?

A) A short position in a bond coupled with a long position in a floating rate note.

B) A short position in a bond coupled with the issuance of a floating rate note.

C) A long position in a bond coupled with the issuance of a floating rate note.

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A long position in a fixed rate bond pays fixed coupons. The short floating rate note requires floating-rate payments. Together, these are the same cash flow as a receive-fixed swap.

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Which of the following is equivalent to a plain vanilla receive fixed currency swap?

A) A short position in a foreign bond coupled with a long position in a dollar-denominated floating rate note.

B) A long position in a foreign bond coupled with the issuance of a dollar-denominated floating rate note.

C) A short position in a foreign bond coupled with the issuance of a dollar-denominated floating rate note.

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A long position in a fixed rate foreign bond will receive fixed coupons denominated in a foreign currency. The short floating rate note requires U.S. dollar denominated floating-rate payments. Combined, these are the same cash flow as a plain vanilla currency swap.