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Q18. Which of the following statements involving a plain vanilla interest rate swap is least accurate? In a plain interest rate swap, the: ffice ffice" />
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 generally agree to swap the notional principal.
C) parties involved in the swap agreement are called counterparties.
Correct answer is B)
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.
Q19. Which transaction would least likely be classified as an interest rate swap?
A) Receive AUD fixed, pay NZD floating.
B) Receive ffice:smarttags" />U.S. fixed, pay U.S. commercial paper.
C) Pay USD fixed, receive U.S. LIBOR.
Correct answer is A)
Because it involves two different currencies, this would be a currency swap.
Q20. Which of the following statements about a currency swap is least accurate?
A) The periodic interest payments are exchanged in full each period.
B) Most currency swaps are done to exploit market inefficiencies.
C) Notional principal is exchanged at the termination of the swap.
Correct answer is B)
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.
Q21. Which of the following statements about notional principal in plain vanilla interest rate swaps is least accurate? Notional principal:
A) is used to calculate the fixed rate interest payment; the swap's market value is used to calculate the floating rate payment.
B) is not exchanged by the counterparties.
C) does not vary during the swap tenor.
Correct answer is A)
The notional amount is used to calculate both the fixed and the floating rate payment streams. Both of the other choices are true.
Q22. Which of the following is NOT considered a reason for using the swaps market? To:
A) exploit market inefficiencies.
B) reduce transactions costs.
C) maintain privacy.
Correct answer is A)
Historically, the two basic motivations for swaps were to exploit market inefficiencies and attempt to achieve cheaper financing. Today, the swaps market has matured and now offers few arbitrage opportunities to exploit market inefficiencies. In addition to seeking cheaper financing, current reasons for using swaps include reducing transactions costs, avoiding costly regulations, and maintaining privacy.
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发表于 2009-3-2 11:15
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