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标题: Reading 72: Swap Markets and Contracts-LOS a 习题精选 [打印本页]

作者: 1215    时间: 2011-3-31 12:36     标题: [2011]Session17-Reading 72: Swap Markets and Contracts-LOS a 习题精选

Session 17: Derivatives
Reading 72: Swap Markets and Contracts

LOS a: Describe the characteristics of swap contracts and explain how swaps are terminated

 

 

Which of the following statements regarding plain-vanilla interest rate swaps is least accurate?

A)
In a swap contract, the counterparties usually swap the notional principal.
B)
The settlement dates are when the interest payments are to be made.
C)
The time frame covered by the swap is called the tenor of the swap.


 

The notional principal is generally not swapped, as it is usually the same for both parties in the swap deal.


作者: 1215    时间: 2011-3-31 12:36

Determine the transactions involved with a plain vanilla interest rate swap and whether or not notional principal is generally swapped:

Plain vanilla interest rate swap Notional principal

A)
pay fixed rate, pay fixed rate swapped
B)
pay fixed rate, pay floating rate swapped
C)
pay floating rate, pay fixed rate not swapped


The most common type of interest rate swap is called a plain vanilla interest rate swap. It involves trading fixed interest rate payments for floating-rate payments. Notional principal is generally not swapped in single currency swaps.


作者: 1215    时间: 2011-3-31 12:39

Swap contracts typically:

A)
do not require a payment from either party at initiation.
B)
cover a single payment.
C)
are standardized contracts.


Swaps typically do not require a payment from either party at initiation. The exception is currency swaps.


作者: 1215    时间: 2011-3-31 12:40

Which of the following statements about swaps is least accurate?

A)
Swaps are illiquid.
B)
Swaps typically have zero value at initiation.
C)
Parties to swap contracts are often individual speculators.


Parties to swaps contracts are usually large institutions, rarely individual speculators or hedgers.


作者: 1215    时间: 2011-3-31 12:40

Consider a U.S. commercial bank that borrows funds in England for one year denominated in English pounds. Why would the investor wish to enter into a swap contract? As the:

A)
English pound decreases in value, it takes more U.S. dollars to pay off the English liability.
B)
English pound increases in value, it takes more U.S. dollars to pay off the English liability.
C)
U.S. interest rate increases, the value of the English liability increases.


As the English pound increases in value, it takes more U.S. dollars to pay off the English liability, which increases the interest cost of borrowing funds denominated in English pounds.


作者: 1215    时间: 2011-3-31 12:40

Which of the following is a reason to use the swaps market rather than the futures market? To:

A)
reduce the credit risk involved with the contract.
B)
maintain the firm's privacy.
C)
increase the liquidity of the contract.


The futures market, because of the use of a standardized contract, is more liquid; and, because the exchange guarantees the contract, futures contracts have less credit risk. However, swaps contracts, because they are over-the-counter (private) contracts, allow the firm to maintain privacy.


作者: 1215    时间: 2011-3-31 12:40

Which of the following is an advantage of the swaps market over the futures markets? The:

A)
credit risk of the contract.
B)
liquidity of the contract.
C)
ability to hedge over long time horizons.


The futures market uses a standardized contract, which increases the liquidity of the contract. Also, futures exchanges assume the credit risk. However, as the time horizon increases, the liquidity of futures contracts decreases substantially. Therefore, swaps are considered a better method of hedging over long time horizons.


作者: 1215    时间: 2011-3-31 12:40

Which of the following is NOT a likely motivation today for entering into a swap agreement?

A)
Maintain privacy.
B)
Avoid costly regulation.
C)
Exploit perceived market inefficiencies.


During the 1980s, some parties entered the swap market in an effort to exploit perceived market inefficiencies. Today, the uses of the swaps market are not motivated by perceived informational inefficiencies.


作者: 1215    时间: 2011-3-31 12:41

The motivation for swap agreements would be:

A)
the reduction of transactions costs.
B)
guaranteed performance on the contracts for all parties.
C)
the reduction of business risk.


Historically, there were two basic motivations for swaps: to exploit perceived market inefficiencies and to attempt to obtain cheaper financing. Both of these motivations are based on the concept that the financial markets are inefficient. This fact, unfortunately, is no longer true. Today, the swap markets are mature and offer few arbitrage opportunities. Swap markets are now viewed as being more operationally efficient and a more flexible means of packaging and transforming cash flows than any other method. The reasons given now for using the swap markets are to: reduce transactions costs, avoid costly regulations, and maintain privacy.


作者: 1215    时间: 2011-3-31 12:41

Which of the following choices is generally NOT part of a plain-vanilla swap transaction?

A)
Tenor.
B)
Exchange of notional amount.
C)
Swap facilitator.


Since the notional principal swapped is the same (and in the same currency) for both counterparties, there is no need to actually exchange cash. The counterparties are the pay-fixed and receive-fixed sides. A swap facilitator helps to bring the counterparties together and may be either an agent or a broker. The tenor of the swap is the time frame covered by the deal, or the time to maturity of the swap.


作者: 1215    时间: 2011-3-31 12:41

Which of the following characteristics about swaps is least accurate? Swaps:

A)
are highly regulated.
B)
have no active secondary market.
C)
are custom instruments.


Swap contracts are largely unregulated.


作者: 1215    时间: 2011-3-31 12:41

Which of the following regarding a plain vanilla interest rate swap is most accurate?

A)
The notional principal is swapped.
B)
Only the net interest payments are made.
C)
The notional principal is returned at the end of the swap.


The plain vanilla interest rate swap involves trading fixed interest rate payments for floating rate payments. Swaps are a zero sum game, what one party gains the other party loses. In interest rate swaps, only the net interest rate payments actually take place because the notional principal swapped is the same for both counterparties and in the same currency units, there is no need to actually exchange the cash.


作者: 1215    时间: 2011-3-31 12:41

The term notional principal refers to:

A)
the period of time involved.
B)
the cash interest payment.
C)
the amount swapped.


The notional principal is the amount swapped. Note that the notional principal does not actually change hands with plain vanilla interest rate swaps, but is used to calculate the interest payment streams to be exchanged. Notional principal does exchange hands in a foreign currency swap.


作者: 1215    时间: 2011-3-31 12:42

Consider a commercial bank with a portfolio of U.S. Treasury bonds. Why would the bank wish to engage in a swap contract? As the:

A)
U.S. dollar decreases, the value of the bonds decreases.
B)
interest rate increases, the value of the bonds decreases.
C)
interest rate decrease, the value of the bonds decreases.


Interest rates and bond prices are inversely related. Therefore, as interest rates increase, the value of the T-bonds decreases. The bank may wish to engage in a swap contract wherein the bank pays fixed and receives variable. In this case, as interest rates rise, the bank receives higher variable payments for making the same fixed payment in the swap. The cash flows received in the swap offset the reduction in the bond portfolio’s value.


作者: 1215    时间: 2011-3-31 12:42

Jan Jurgen, CFA charterholder, recently accepted a position in the Treasury area of a conservatively managed commercial bank. Jurgen intends to suggest the use of plain-vanilla interest rate swaps at today’s Asset & Liability Management Committee meeting. Jurgen is least likely to argue that the use of interest rate swaps will:

A)
avoid costly regulations.
B)
reduce the exposure from the mismatch between floating rate assets and fixed rate liabilities.
C)
create arbitrage profits by exploiting market inefficiencies.


Exploiting market inefficiencies is no longer considered a motivation for entering into swap agreements. Historically, there were two basic motivations for swaps, to exploit market inefficiencies and to attempt to obtain cheaper financing. Both were based on the belief that financial markets were inefficient. Today, the swap markets have matured and there are few arbitrage opportunities. The swap markets are considered operationally efficient and flexible. Thus, the main reasons to enter into swap agreements today include: to reduce transaction costs, to avoid costly regulations, and to maintain privacy.


作者: 1215    时间: 2011-3-31 12:42

Parties agreeing to swap cash flows are:

A)
swap facilitators.
B)
agents.
C)
counterparties.


The parties agreeing to swap cash flows are called the counterparties.


作者: 1215    时间: 2011-3-31 12:42

Consider a U.S. investor who has a portfolio of Australian government bonds that are denominated in Australian dollars. Why would the investor wish to enter into a swap contract? As the Australian:

A)
dollar increases in value, the interest payments from the Australian bonds translate into fewer U.S. dollars.
B)
interest rate decreases, the value of the Australian bonds decreases.
C)
dollar decreases in value, the interest payments from the Australian bonds translate into fewer U.S. dollars.


As the Australian dollar decreases in value, the interest payments from the bond (and perhaps the bond’s face value if the bond is at maturity), translate into fewer U.S. dollars, which reduces the interest earned on the Australian bonds.


作者: 1215    时间: 2011-3-31 12:42

Which of the following statements about swaps is least accurate?

A)
The notional principal is swapped at the beginning and end of a currency swap.
B)
The notional principal is swapped at the beginning of an interest rate swap.
C)
Motivations to engage in swaps include reducing transaction costs and maintaining privacy.


In interest rate swaps, there is no need to actually exchange the notional amount, since the notional principal swapped is the same for both counterparties and in the same currency units. Net interest is paid by the one who owes it at settlement dates.

Explanations for other responses:

The reasons given now for using the swap markets are to: reduce transactions costs, avoid costly regulations, and maintain privacy. Historically, there were two basic motivations for swaps: to exploit perceived market inefficiencies and to attempt to obtain cheaper financing. Both of these motivations are based on the concept that the financial markets are inefficient. This fact, unfortunately, is no longer true.  Today, the swap markets are mature and offer few arbitrage opportunities. Swap markets are now viewed as being more operationally efficient and a more flexible means of packaging and transforming cash flows than any other method. Currency swaps often occur because of comparative advantage. For example, parties may want to reduce borrowing costs. One firm may have better access to a country’s domestic capital markets than another firm. The U.S. firm (D) may have access to the U.S. capital markets but not the German markets, while the German firm (M) may have access to the German markets but not the U.S. markets. If each firm borrows locally and then exchanges the funds, they will both gain.

In a currency swap, interest payments are made without netting. Full interest payments are exchanged at each settlement date. Currency swap counterparties actually exchange notional principal because the motivation of the parties is to receive foreign currency.


作者: 1215    时间: 2011-3-31 12:43

Which of the following statements involving a plain vanilla interest rate swap is least accurate? In a plain interest rate swap, the:

A)
counterparty who receives the fixed payment by agreeing to pay variable rate interest is called the receive-fixed side of the swap.
B)
parties involved in the swap agreement are called counterparties.
C)
parties generally agree to swap the notional principal.


The notional principal is the dollar amount specified in the swap agreement. The counterparties use the notional principal to determine the amount of the interest payments. They generally do not exchange the notional principal.


作者: 1215    时间: 2011-3-31 12:43

Which transaction would least likely be classified as an interest rate swap?

A)
Receive U.S. fixed, pay U.S. commercial paper.
B)
Pay USD fixed, receive U.S. LIBOR.
C)
Receive AUD fixed, pay NZD floating.


Because it involves two different currencies, this would be a currency swap.


作者: 1215    时间: 2011-3-31 12:43

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.


作者: 1215    时间: 2011-3-31 12:43

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.


作者: luqian55    时间: 2011-10-8 12:57

thanks a lot
作者: gaoflex    时间: 2011-10-17 11:36

thanks a lot.




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