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Q6. Currency swap markets consist of transactions in:ffice ffice" />
A) the forward market only.
B) spot markets only.
C) both spot and forward contracts.
Correct answer is C)
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).
Q7. Consider a swap with a notional principal of $120 million.
Given the above diagrams, which of the following statements is TRUE? At the end of 360 days:
A) A pays B $13.2 million and B pays A $12 million.
B) A pays B $0.6 million.
C) A pays B $1.2 million.
Correct answer is B)
The variable rate to be used at the end of 360 days is set at the 180-day period (the arrears method). Therefore, the appropriate variable rate is 10%, the fixed rate is 11%, the time period is 180 days, and the interest payments are netted. The fixed-rate payer, counterparty A, pays according to:
(Swap Fixed Rate – LIBORt-1)(# of days/360)(Notional Principal).
In this case, we have (0.11 - 0.10)(180/360)($120 million) = $0.6 million
Q8. Consider a $10,000,000 1-year quarterly-pay swap with a fixed rate of 4.5% and a floating rate of 90-day London Interbank Offered Rate (LIBOR) plus 150 basis points. 90-day LIBOR is currently 3% and the current forward rates for the next four quarters are 3.2%, 3.6%, 3.8%, and 4%. If these rates are actually realized, at the termination of the swap the floating-rate payer will:
A) pay $25,000.
B) pay $10,020,000.
C) pay $20,000.
Correct answer is C)
The payment at the fourth (final) settlement date will be based on the realized LIBOR at the third quarter, 3.8%. The net payment by the floating rate payer will be:
(0.038 + 0.015 ? 0.045) × 90/360 × 10,000,000 = $20,000
Q9. Consider a swap with a notional principal of $100 million.
Given the above diagrams, which of the following statements is TRUE? At time period 2:
A) B pays A $1 million.
B) A pays B $2 million.
C) A pays B $7 million and B pays A $8 million.
Correct answer is A)
The variable rate to be used at time period 2 is set at time period 1 (the arrears method). Therefore, the appropriate variable rate is 7%, the fixed rate is 8%, and the interest payments are netted. The fixed-rate payer, counterparty B, pays according to:
(Swap Fixed Rate – LIBORt-1)(# of days/360)(Notional Principal).
In this case, we have (0.08 - 0.07)(360/360)($100 million) = $1 million
Q10. 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% 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%.
A) XYZ company receives $2,000.
B) Dealer receives $2,000.
C) Dealer pays XYZ company $20,000.
Correct answer is A)
XYZ company owes the dealer ($1,000,000)(0.08)(90/360) = $20,000. The dealer owes XYZ company ($1,000,000)(0.088)(90/360) = $22,000. Net: The dealer pays XYZ company $22,000 - $20,000 = $2,000
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发表于 2009-3-2 11:29
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