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Which of the following statements about a currency swap is least accurate?

A)
Most currency swaps are done to exploit market inefficiencies.
B)
The periodic interest payments are exchanged in full each period.
C)
Notional principal is exchanged at the termination of the swap.


Unlike interest rate swaps, notional principal is swapped at both the initiation and the termination of the swap. Full interest payments are exchanged at each settlement date. Exploiting market inefficiencies was once a motivation for currency swaps, but it is not today (because the market is efficient). Today motivations range from reducing transactions costs to maintaining privacy to avoiding regulation.

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Which of the following statements about notional principal in plain vanilla interest rate swaps is least accurate? Notional principal:

A)
is not exchanged by the counterparties.
B)
is used to calculate the fixed rate interest payment; the swap's market value is used to calculate the floating rate payment.
C)
does not vary during the swap tenor.


The notional amount is used to calculate both the fixed and the floating rate payment streams. Both of the other choices are true.

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thanks a lot

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thanks a lot.

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