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tT
发表于 2008-9-16 17:31 | 只看该作者

Reading 40: Risk Management Applications of Swap Strategie

market, impact, converts
CFA Institute Area 8-11, 13: Asset Valuation
Session 13: Risk Management Applications of Derivatives
Reading 40: Risk Management Applications of Swap Strategies
LOS c: Explain the impact to cash flow risk and market value risk when a borrower converts a fixed-rate loan to a floating-rate loan.
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tycoon

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2#
发表于 2008-9-16 17:32 | 只看该作者

Which of the following positions results in synthetic floating-rate debt?

A)A long position in a fixed-rate bond combined with a pay-fixed interest rate swap.
B)A short position in a fixed-rate bond combined with a pay-fixed interest rate swap.
C)A long position in a fixed-rate bond combined with a receive-fixed interest rate swap.
D)
A short position in a fixed-rate bond combined with a receive-fixed interest rate swap.

Answer and Explanation

The receive-fixed part of the interest rate swap offsets the fixed rate payments the short bond position requires. Therefore, a synthetic floating-rate debt position is created.

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tycoon

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3#
发表于 2008-9-16 17:32 | 只看该作者

A firm has borrowed from a bank at a cost of LIBOR + 200 basis points and wishes to create synthetic fixed-rate debt to protect against an interest rate increase. The firm should do which of the following? Pay:

A)

floating (LIBOR) and receive fixed in a swap.

B)

floating (LIBOR) and receive floating (PRIME) in a swap.

C)

floating (PRIME) and receive floating (LIBOR) in a swap.

D)

fixed and receive floating (LIBOR) in a swap.


Answer and Explanation

To create synthetic fixed-rate debt to protect against an interest rate increase, the firm should pay fixed and receive variable in a swap.

To create synthetic fixed-rate debt to protect against an interest rate increase, the firm should pay fixed and receive variable in a swap.

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tycoon

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4#
发表于 2008-9-16 17:33 | 只看该作者

Which of the following statements regarding a firm that currently has fixed-rate, noncallable domestic debt outstanding is least accurate? The firm:

A)can turn the debt into floating rate by entering a receive-fixed swap position.
B)can turn the debt into callable debt by entering into a receiver's swaption position.
C)can turn the debt into dual currency debt by entering into a fixed-for-fixed currency swap where notional principal is not swapped.
D)
is exposed to an increase in interest rates.

Answer and Explanation

Since the debt is currently fixed rate, there is no interest rate exposure for the firm.

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tycoon

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5#
发表于 2008-9-16 17:33 | 只看该作者

A pay-floating counterparty in a plain-vanilla interest-rate swap also holds a long position in a fixed-rate bond. If the maturity of the bond and swap are both two years, the duration of the position will be:

A)
greater than the duration of the bond alone.
B)less than the duration of the bond but greater than zero.
C)zero.
D)one.

Answer and Explanation

The duration of the position will increase with the addition of the pay-floating/receive-fixed position. None of the other answers can be correct.

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tycoon

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6#
发表于 2008-9-16 17:34 | 只看该作者

For an issuer of a floating-rate note, the market value of the loan will be:

A)
relatively stable but the position will become less stable with the addition of a receive-floating swap position.
B)zero with the addition of a pay-floating swap position.
C)infinite with the addition of a receive-floating swap position.
D)volatile, but the position will become more stable with the addition of a receive-floating swap position.

Answer and Explanation

A floating-rate notes value will be relatively stable because the payments vary with changes in the interest rates. Adding a receive-floating position will produce a synthetic fixed-payment position whose value will change with changes in interest rates.

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tycoon

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7#
发表于 2008-9-16 17:34 | 只看该作者

Which of the following statements is most correct? The duration of a long-position in a floating-rate note is:

A)equal to its maturity but decreases to near zero with the addition of a pay-floating position in a swap.
B)
close to zero but increases with the addition of a pay-floating position in a swap.
C)equal to its maturity and increases with the addition of a pay-floating position in a swap.
D)close to zero and is unaffected by the addition of a receive-floating position in a swap.

Answer and Explanation

A floating-rate notes value will be relatively stable because the payments vary with changes in the interest rates. For the long position (the lender), adding a pay-floating position will produce a synthetic fixed-rate position whose value will change with changes in interest rates.

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