Reading 71: Swap Markets and Contracts- LOSb(part 3)～ Q1

currently, principal, interest, payments

Q11. XYZ, Inc. has entered into a "plain-vanilla" interest rate swap on $5,000,000 notional principal. XYZ company pays a fixed rate of 8.5% on payments that occur at 180-day intervals. Platteville Investments, a swap broker, negotiates with another firm, SSP, to take the receive-fixed side of the swap. The floating rate payment is based on LIBOR (currently at 7.2%). At the time of the next payment (due in exactly 180 days), XYZ company will:

A) pay the dealer net payments of $65,000.

B) pay the dealer net payments of $32,500.

C) receive net payments of $32,500.

Q12. 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 second quarterly settlement date, the fixed-rate payer in the swap will:

A) receive a payment of $10,000.

B) receive a payment of $5,000.

C) neither make nor receive a payment.

Q13. DWR Services, Ltd., arranges a plain vanilla interest rate swap between RWDY Enterprises (pays fixed) and RED, Inc. (receives fixed). The swap has a notional value of $25,000,000 and 270 days between payments. LIBOR is currently at 7.0%. If at the time of the next payment (due in exactly 270 days), RWDY receives net payments of $93,750, the swap fixed rate is closest to:

A) 7.500%.

B) 6.500%.

C) 6.625%.

Q14. 123, Inc. has entered into a "plain-vanilla" interest rate swap on $10,000,000 notional principal. 123 company receives a fixed rate of 6.5% on payments that occur at monthly intervals. Platteville Investments, a swap broker, negotiates with another firm, PPS, to take the pay-fixed side of the swap. The floating rate payment is based on LIBOR (currently at 4.8%). At the time of the next payment (due in exactly one month),123, Inc. will:

A) receive net payments of $42,500.

B) receive net payments of $14,167.

C) pay the dealer net payments of $14,167.

Q15. Which of the following statements about swaps is FALSE?

A) In an interest rate swap, only the net interest payments are made.

B) In a currency swap, only net interest payments are made.

C) In an interest rate swap, the pay-fixed party makes a sequence of fixed rate interest payments and receives a sequence of floating rate interest payments.