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

A)   The notional principal is swapped.

B)   Only the net notional principal is swapped.

C)   Only the net interest payments are made.

D)   The notional principal is returned at the end of the swap.

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

A)   are custom instruments.

B)   involve counterparty risk.

C)   have no active secondary market.

D)   are highly regulated.

3.The motivation for swap agreements would be:

A)   guaranteed performance on the contracts for all parties.

B)   the exploitation of market inefficiencies.

C)   the reduction of business risk.

D)   the reduction of transactions costs.

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

A)   Maintain privacy.

B)   Exploit perceived market inefficiencies.

C)   Avoid costly regulation.

D)   Reduce transactions costs.

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

A)   liquidity of the contract.

B)   ability to hedge over long time horizons.

C)   standardized contract.

D)   credit risk of the contract.

答案和详解如下：

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

A)   The notional principal is swapped.

B)   Only the net notional principal is swapped.

C)   Only the net interest payments are made.

D)   The notional principal is returned at the end of the swap.

The correct answer was C)

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.

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

A)   are custom instruments.

B)   involve counterparty risk.

C)   have no active secondary market.

D)   are highly regulated.

The correct answer was D)

Swap contracts are largely unregulated.

3.The motivation for swap agreements would be:

A)   guaranteed performance on the contracts for all parties.

B)   the exploitation of market inefficiencies.

C)   the reduction of business risk.

D)   the reduction of transactions costs.

The correct answer was D)    

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.

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

A)   Maintain privacy.

B)   Exploit perceived market inefficiencies.

C)   Avoid costly regulation.

D)   Reduce transactions costs.

The correct answer was B)

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.

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

A)   liquidity of the contract.

B)   ability to hedge over long time horizons.

C)   standardized contract.

D)   credit risk of the contract.

The correct answer was B)

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.