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LOS a: Evaluate hedging strategies that rely on swaps and illustrate their inherent risk exposures.
Q1. With respect to commodity swaps and interest rate swaps, if all interest rates undergo a simultaneous shift, which swap’s will change in market value?
A) Neither commodity swaps nor interest rate swaps.
B) Both commodity swaps and interest rate swaps.
C) Only one of the swaps will change in value.
Q2. In the cases of commodity and interest rate swaps, which of the following statements is least accurate?
A) The notional principal of a commodity swap would not be denominated in a currency.
B) The swap price and swap rate of commodity swaps and interest rate swaps, respectively, are both weighted averages of values from futures and forward contracts.
C) Commodity swaps are only settled at the expiration of the swap and do not have reset periods during the tenor.
Q3. Which of the following types of risk that a position in a commodity swap is exposed to is least accurate?
A) market risk from changes in commodity prices.
B) J-factor risk.
C) interest-rate risk.
Q4. Morgan Hutchinson is a senior vice president of Global Swapsbank, Ltd., a multi-national banking corporation with prominent and international presence as a swaps dealer. Global Swapsbank deals in both interest rate swaps and commodity swaps and maintains offices on 5 continents and in more than 60 countries.
Among major financial market participants, concern has been growing about global economic conditions. Financial markets are declining. Economic growth is slowing. Odds of a recession are rising. In this environment, the economics division of Global Swapsbank has put the senior management of the firm on notice about potential changes in interest rates and commodity prices.
This economic concern has become sufficiently significant that the board of directors of Global Swapsbank has taken notice. They recognize that their projections for the firm’s upcoming fiscal year will not be met if the potential downturn in the global economy becomes a reality.
The board responded to this concern by charging Hutchinson with assessing the impact of the changing economic situation on the financial risk and obligations of Global Swapsbank with respect to its swap division. The board has also tasked him with determining whether changing global economic environment may affect demand for swaps and cause a shift in revenue growth projections for Global Swapsbank.
Hutchinson has asked for a meeting with Graciela Swanson, one of the firm’s senior global economists. They collaborate to analyze the impact of the economics division’s various possible scenarios on the performance of the swaps division.
Hutchinson briefs Swanson on the reasons for Global Swapsbank’s concerns. He explains to her:
Statement 1: We are very concerned about the impact of economic changes on current market conditions because the value of a commodity swap can change in response to market prices, forward prices or interest rates.
Statement 2: We have not been concerned about possible changes in the creditworthiness of the various counterparties in the event of deteriorating economic conditions because financially settled swaps eliminate credit risk.
Swanson asks Hutchinson what the major sources of swap revenue are to the firm. He explains that Global Swapsbank does a substantial amount of business in prepaid swaps. The firm has a wide-ranging client list among recurring buyers of prepaid swaps, and consequently the revenue of the firm depends significantly on the attractiveness of a prepaid swap to the buyer.
Hutchinson explains the buyer perspective on prepaid swaps to Swanson. He tells her, “The buyer of a prepaid swap faces both market risk from changes in forward prices and financial risk that changes in interest rates could lead to an increase in the settlement cost of the swap.”
Swanson pursues the discussion of prepaid swaps. However, she changes the focus to credit risk. Swanson points out to Hutchinson, “The swap division does need to consider credit risk in the event of deteriorating economic conditions because the buyer of a prepaid swap faces credit risk that the counterparty will not deliver the commodity.”
Hutchinson points out, “Credit risk can be removed from a commodity swap if the counterparties hedge with an appropriate interest rate swap. That might increase demand for swap transactions for Global Swapsbank.” Swanson suggests, “Hedging commodity transactions requires addressing the seasonality of commodity prices, which can be done by including either a varying quantity or a varying price component into the swap agreement.” Swanson and Hutchinson agree that Global Swapsbank should ensure that its swap agreements going forward include appropriate terms to hedge expected commodity risk.
Is Hutchinson correct in his statements about the risks to a buyer of a prepaid swap?
A) Both statements are correct.
B) Only one statement is correct.
C) Neither statement is correct.
Q5. At inception and ignoring fees, the swap prices of a commodity swap and an interest rate swap have a market value of:
A) greater than zero for both.
B) greater than zero for only one of the swaps.
C) zero for both.
Q6. Are Hutchinson and Swanson correct in their statements about the risks to a buyer of a prepaid swap?
A) Both are correct.
B) Only one is correct.
C) Neither are correct.
Q7. Regarding an annual reset commodity swap and an accreting interest rate swap, which one if any will the notional principal likely vary?
A) Neither will vary.
B) Both will vary.
C) Only one will vary.
Q8. Are Hutchinson and Swanson correct in their statements about the hedging and commodity swaps?
A) Only one is correct.
B) Both are correct.
C) Both are incorrect.
Q9. Will the value of a commodity swap or interest rate swap change over time if market rates and prices do not change?
A) Only one will change.
B) Both will change.
C) Neither will change.
Q10. At the inception of either an interest rate or a commodity swap, who bears the most credit risk?
A) The fixed-rate payers in both cases bear the credit risk at inception.
B) There is no credit risk at the inception of either swap.
C) The fixed-rate payer in the commodity swap and the floating-rate payer in the interest rate swap bear the credit risk at the inception of the respective swaps.
Q11. Charles Briggs, CFA, wants to effectively hedge against changes in the value of a commodity swap in which he has a position. Briggs plans to only use futures contracts. To effectively hedge the value of the swap, Briggs will need to use:
A) both commodity futures and interest rate futures.
B) interest rate futures only.
C) commodity futures only.
Q12. To accommodate the seasonality of commodity markets, commodity swaps can incorporate:
A) only notional principals that vary with the seasons.
B) notional principals and swap prices that vary with the seasons.
C) only swap prices that vary with the seasons. | 
发表于 2009-3-11 10:27
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