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标题: Portfolio Management【 Reading 57】Sample [打印本页]
作者: HuskyGrad2010    时间: 2012-4-3 14:51     标题: [2012 L2] Portfolio Management【Session 17- Reading 57】Sample

At the inception of a market-rate plain vanilla swap, the value of the swap to the fixed-rate payer is:
A)
either positive or negative.
B)
positive.
C)
zero.


A market-rate swap is priced so that the value to either side is zero at the inception of the swap
作者: HuskyGrad2010    时间: 2012-4-3 14:52

Over the life of a swap, the price of the swap:
A)
does not change.
B)
fluctuates with changes in the yield curve.
C)
is approximately equal to the market value of the swap.


The price of a swap, quoted as the fixed rate in the swap, is determined at contract initiation and remains fixed for the life of the swap.
作者: soverby    时间: 2012-4-3 14:54

The price of an interest rate swap is the:
A)
cost to purchase a swap.
B)
fixed rate of interest.
C)
market value of the swap.


The price of an interest rate swap is quoted as the rate on the fixed-rate payments. The floating rate is a known reference rate, such as London Interbank Offered Rate (LIBOR), but does not need to be quoted.
作者: soverby    时间: 2012-4-3 15:09

The fixed-rate on a semiannual 2-year interest rate swap is closest to the:
A)
current 180-day T-bill rate.
B)
coupon rate on a 2-year par bond with the same credit risk as the fixed-rate payer.
C)
coupon rate on a 2-year par bond with the same credit risk as the reference rate.


The fixed-rate on a swap is calculated using the yield curve for the floating rate reference, usually London Interbank Offered Rate (LIBOR). Therefore, the fixed rate reflects the credit spread of that rate over the riskless rate of return.
作者: soverby    时间: 2012-4-3 15:10

The fixed-rate payer in an interest-rate swap has a position equivalent to a series of:
A)
short interest-rate puts and long interest-rate calls.
B)
long interest-puts and short interest-rate calls.
C)
long interest-rate puts and calls.


The fixed-rate payer has profits when short rates rise and losses when short rates fall, equivalent to writing puts and buying calls.
作者: soverby    时间: 2012-4-3 15:10

The fixed-rate receiver in a plain vanilla interest rate swap has a position equivalent to a series of:
A)
long interest-rate puts.
B)
short interest-puts and long interest-rate calls.
C)
long interest-rate puts and short interest-rate calls.


The fixed-rate receiver has profits when short rates fall and losses when short rates rise, equivalent to buying puts and writing calls.
作者: soverby    时间: 2012-4-3 15:11

For a 1-year quarterly-pay swap, an equivalent position with short puts and long calls would involve:
A)
put-call combinations expiring on each of the four settlement dates.
B)
three put-call combinations expiring on the first three settlement dates of the swap.
C)
three put-call combinations on the last three settlement dates of the swap.


Interest rate options pay one period after exercise. Options expiring on settlements at t = 1,2,3, will mimic the uncertain swap payments at t = 2,3,4.
作者: soverby    时间: 2012-4-3 15:11

Writing a series of interest-rate puts and buying a series of interest-rate calls, all at the same exercise rate, is equivalent to:
A)
being the fixed-rate payer in an interest rate swap.
B)
being the floating-rate payer in an interest rate swap.
C)
a short position in a series of forward rate agreements.


A short position in interest rate puts will have a negative payoff when rates are below the exercise rate; the calls will have positive payoffs when rates exceed the exercise rate. This mirrors the payoffs of the fixed-rate payer who will receive positive net payments when settlement rates are above the fixed rate.
作者: soverby    时间: 2012-4-3 15:11

An off-market forward rate agreement (FRA):
A)
provides a series of payments.
B)
has a positive value at contract initiation.
C)
cannot be priced with market rates.


An off-market FRA has a contract rate that differs from the zero-value rate at the inception of the contract; by definition, it has a positive value to one of the parties to the FRA.
作者: soverby    时间: 2012-4-3 15:12

Suppose a forward rate agreement (FRA) calls for the exchange of six-month London Interbank Offered Rate (LIBOR) two years from now for a payment of a fixed rate of interest of 6%. Which of the following structures is equivalent to this long FRA? A long:
A)
put and a short call on LIBOR with a strike rate of 6% and two years to expiration.
B)
call on LIBOR with a strike rate of 6% and eighteen months to expiration.
C)
call and a short put on LIBOR with a strike rate of 6% and two years to expiration.


The strike rate of the options corresponds to the fixed rate of the FRA. The expiration of the option coincides with the determination date of the LIBOR-based payment which is paid two years from now.
作者: soverby    时间: 2012-4-3 15:12

A swap is equivalent to a series of:
A)
interest rate calls.
B)
off-market FRAs.
C)
FRAs priced at market rates.


Since the fixed rate on the swap is the same at every settlement date, a series of FRAs at those fixed rates will have values that differ from zero to the extent the fixed rate and the zero-value rate differ. This makes them off-market FRAs.
作者: soverby    时间: 2012-4-3 15:43

Suppose a forward rate agreement (FRA) calls for the exchange of six-month LIBOR one year from now for a payment of a fixed rate of interest of 8%. In other words, pay floating and receive fixed. Which of the following structures is equivalent to this FRA? A long:
A)
call and a short put on LIBOR with a strike rate of 8% and twelve months to expiration.
B)
put and a short call on LIBOR with a strike rate of 8% and twelve months to expiration.
C)
call and a short put on LIBOR with a strike rate of 8% and six months to expiration.



The strike rate of the options corresponds to the fixed rate of the FRA. The expiration of the option coincides with the LIBOR determination date.
作者: soverby    时间: 2012-4-3 15:44

The floating-rate payer in a simple interest-rate swap has a position that is equivalent to:
A)
issuing a floating-rate bond and a series of long FRAs.
B)
a series of short FRAs.
C)
a series of long forward rate agreements (FRAs).



The floating-rate payer has a liability/gain when rates increase/decrease above the fixed contract rate; the short position in an FRA has a liability/gain when rates increase/decrease above the contract rate.
作者: soverby    时间: 2012-4-3 15:44

Which of the following is equivalent to a pay-fixed swap with a tenor of two years with semi-annual swap payments and a fixed rate of 6% (exchanged for LIBOR)? The notional principal is $100,000,000.
A)
A forward rate agreement, which obligates the party to pay a fixed rate of 6% and receive six-month LIBOR on a notional principal of $100,000,000.
B)
A strip of three forward rate agreements, which obligates the party to pay a fixed rate of 6% and receive six-month LIBOR on a notional principal of $100,000,000.
C)
A strip of two forward rate agreements, which obligates the party to pay a fixed rate of 6% and receive six-month LIBOR on a notional principal of $100,000,000.


In an interest rate swap, the first payment is known with certainty and will be made at month 6. The determination dates for the floating rate will be at months 6, 12, and 18 and the corresponding payment dates will be at months 12, 18, and 24. These correspond to the three forward rate agreements.
作者: soverby    时间: 2012-4-3 15:45

Which of the following is equivalent to a plain vanilla receive fixed currency swap?
A)
A short position in a foreign bond coupled with a long position in a dollar-denominated floating rate note.
B)
A long position in a foreign bond coupled with the issuance of a dollar-denominated floating rate note.
C)
A short position in a foreign bond coupled with the issuance of a dollar-denominated floating rate note.


A long position in a fixed rate foreign bond will receive fixed coupons denominated in a foreign currency. The short floating rate note requires U.S. dollar denominated floating-rate payments. Combined, these are the same cash flow as a plain vanilla currency swap.
作者: soverby    时间: 2012-4-3 15:45

Which of the following is equivalent to a plain vanilla receive-fixed interest rate swap?
A)
A short position in a bond coupled with a long position in a floating rate note.
B)
A long position in a bond coupled with the issuance of a floating rate note.
C)
A short position in a bond coupled with the issuance of a floating rate note.


A long position in a fixed rate bond pays fixed coupons. The short floating rate note requires floating-rate payments. Together, these are the same cash flow as a receive-fixed swap.
作者: soverby    时间: 2012-4-3 15:45

A plain vanilla interest-rate swap to the fixed-rate payer is equivalent to issuing a fixed-rate bond and:
A)
selling a series of interest rate puts.
B)
buying a floating-rate bond.
C)
selling a series of interest rate calls.


Paying fixed and receiving floating in a swap is equivalent to issuing a fixed-rate bond and investing the proceeds in a floating rate bond.
作者: soverby    时间: 2012-4-3 15:46

If the one year spot rate is 5%, the two-year spot rate is 5.5%, and the three year spot rate is 6%, the fixed rate on a 3-year annual pay swap is closest to:
A)
1.99%.
B)
4.50%.
C)
5.65%.


The fixed rate on the swap is:

= 0.1525 / 2.7008 = 0.0565
作者: soverby    时间: 2012-4-3 15:47

A U.S. firm (U.S.) and a foreign firm (F) engage in a four year plain-vanilla annual pay currency swap. The U.S. firm pays fixed in the FC and receives floating in dollars. The fixed rate at initiation and at the end of the swap was 5%. The variable rate at the end of year 1 was 4%, at the end of year 2 was 6%, and at the end of year 3 was 7%. At the beginning of the swap, $2 million was exchanged at an exchange rate of 2 foreign units per $1. At the end of the swap period the exchange rate was 1.75 foreign units per $1.
At the end of year 3, firm F will pay firm U.S.:
A)
280,000 foreign units.
B)
$140,000.
C)
$120,000.


A plain-vanilla currency swap pays floating on dollars and fixed on foreign. The floating rate cash flows on the settlement date are based on the previous period's ending floating interest rate 0.06 x $2,000,000 = $120,000.
作者: soverby    时间: 2012-4-3 15:47

A $10 million 1-year semi-annual-pay LIBOR-based interest-rate swap was initiated 90 days ago when LIBOR was 4.8%. The fixed rate on the swap is 5%, current 90-day LIBOR is 5% and 270-day LIBOR is 5.4%. The value of the swap to the fixed-rate payer is closest to:
A)
$15,633.
B)
$19,229.
C)
$12,465.


The fixed rate payments are 0.05 × (180/360) × 10,000,000 = 250,000. The present value of the remaining payments are 250,000/(1 + 0.05 × (90/360)) + 10,250,000/(1+ 0.054 × (270/360)) = $10,097,947. The floating payment in 90 days is 0.048 × (180/360) = 240,000 and the present value is 240,000/(1 + 0.05/4) = $237,037. The second floating-rate payment combined with 1 at the end of the swap has a present value of 1 on the first payment date. The present value of 1 is 1/(1 + 0.05 × (90/360)) = 0.987654321 so the present value of the second floating rate payment combined with the principal amount is $9,876,543. The total value is 9,876,543 + 237,037 = $10,113,580.
The value of the swap to the fixed-rate payer is 10,113,580 – 10,097,947 = $15,633
作者: soverby    时间: 2012-4-3 15:47

A U.S. firm (U.S.) and a foreign firm (F) engage in a plain-vanilla currency swap; U.S. is the fixed rate payer. The fixed rate at initiation was 5%. The variable rate at the end of year 1 was 4%, at the end of year 2 was 6%, and at the end of year 3 was 7%. At the beginning of the swap, $2 million was exchanged at an exchange rate of 2 foreign units per $1. At the end of the swap period the exchange rate was 1.75 foreign units per $1.
At the end of year 1, firm:
A)
F pays firm U.S. $200,000.
B)
U.S. pays firm F 200,000 foreign units.
C)
U.S. pays firm F $200,000.


A plain-vanilla currency swap pays floating on dollars and fixed on foreign. Fixed on foreign 0.05 × $2,000,000 × 2 foreign units per $1 = 200,000 foreign units paid by the U.S. firm.
作者: soverby    时间: 2012-4-3 15:48

The current U.S. dollar ($) to Canadian dollar (C$) exchange rate is 0.7. In a $1 million currency swap, the party that is entering the swap to hedge existing exposure to C$-denominated fixed-rate liability will:
A)
receive floating in C$.
B)
pay C$1,428,571 at the beginning of the swap.
C)
pay floating in C$.


The receive-fixed C$ position will pay 1,000,000/0.7 = C$1,428,571 at swap inception (in exchange for $1 million) and get it back at termination.
作者: soverby    时间: 2012-4-3 15:48

Consider a one-year currency swap with semiannual payments. The payments are in U.S. dollars and euros. The current exchange rate of the euro is $1.30 and interest rates are


180 days
360 days

USD LIBOR
5.6%
6.0%

Euribor
4.8%
5.4%
What is the fixed rate in euros?
A)
5.318%.
B)
2.659%.
C)
5.245%.

The present values of 1 euro received in 180 days and 1 euro received in 360 days are: 1/(1 + 0.048 × (180/360)) = 0.9766 and 1/1.054 = 0.9488
The fixed rate in euros is (1 - 0.9488) / (0.9766 + 0.9488) = 0.026592 × (360/180) = 5.318%. The notional principal is 100,000/1.30 = 76,923 euros.
作者: soverby    时间: 2012-4-3 15:49

A U.S. firm (U.S.) and a foreign firm (F) engage in a plain-vanilla currency swap. The fixed rate at initiation and at the end of the swap was 5%. The variable rate at the end of year 1 was 4%, at the end of year 2 was 6%, and at the end of year 3 was 7%. At the beginning of the swap, $2 million was exchanged at an exchange rate of 2 foreign units per $1. At the end of the swap period the exchange rate was 1.75 foreign units per $1.
At the termination of the swap, firm F gives firm U.S.:
A)
$2 million.
B)
$1,750,000.
C)
4 million foreign units.


At termination, the notional principal will be exchanged. Firm F gives back what it borrowed, $2 million, and the terminal exchange rate is not used.
作者: soverby    时间: 2012-4-3 15:49

90 days ago the exchange rate for the Canadian dollar (C$) was $0.83 and the term structure was:


180 days
360 days

LIBOR
5.6%
6%

CDN
4.8%
5.4%.

A swap was initiated with payments of 5.3% fixed in C$ and floating rate payments in USD on a notional principal of USD 1 million with semiannual payments.
90 days have passed, the exchange rate for C$ is $0.84 and the yield curve is:


90 days
270 days

LIBOR
5.2%
5.6%

CDN
4.8%
5.4%
What is the value of the swap to the floating-rate payer?
A)
−$2,708.
B)
$3,472.
C)
$10,126.


The present value of the USD floating-rate payment is:

(1.028 / 1.013) = 1.014808
1.014808 × 1,000,000 = $1,014,808
The present value of the fixed C$ payments per 1 CDN is:

(0.0265 / 1.012) + (1.0265 / 1.0405) = 1.012731 and for the whole swap amount, in USD is 1.012731 × 0.84 × (1,000,000 / 0.83) = $1,024,932
−1,014,808 + 1,024,932 = $10,126
作者: soverby    时间: 2012-4-3 15:50

Consider a fixed-for-fixed 1-year $100,000 semiannual currency swap with rates of 5.2% in USD and 4.8% in CHF, originated when the exchange rate is $0.34. 90 days later, the exchange rate is $0.35 and the term structure is:

90 days
270 days

LIBOR
5.2%
5.6%

Swiss
4.8%
5.4%
What is the value of the swap to the USD payer?
A)
-$2,719.
B)
$2,814.
C)
$2,719.


The present value of the fixed payments on one CHF is
0.02372 + 0.98414 = 1.00786.At the current exchange rate the value is 1.00786 × 0.35 = USD 0.35275. The notional amount is 100,000/0.34 = 294,118 CHF so the dollar value of the CHF payments is 0.35275 × 294,118 = $103,750.
The present value of the USD payments is 0.02567 + 0.98464 = 1.01031
1.01031 × 100,000 = $101,031.
The value of the swap to the dollar payer is 103,750 – 101,031 = $2,719.
作者: soverby    时间: 2012-4-3 15:50

Consider a fixed-rate semiannual-pay equity swap where the equity payments are the total return on a $1 million portfolio and the following information:
What is the fixed rate on the swap?
A)
5.4234%.
B)
5.4197%.
C)
5.1387%.


作者: soverby    时间: 2012-4-3 15:51

Consider a fixed-rate semiannual-pay equity swap where the equity payments are the total return on a $1 million portfolio and the following information: What is the fixed rate on the swap?
A)
4.3232%.
B)
4.4477%.
C)
4.5143%.


= 0.022239 × 2 = 4.4477%
作者: soverby    时间: 2012-4-3 15:51

Consider a $5 million semiannual-pay floating-rate equity swap initiated when the equity index is 760 and 180-day LIBOR is 3.7%. After 90 days the index is at 767, 90-day LIBOR is 3.4 and 270-day LIBOR is 3.7. What is the value of the swap to the floating-rate payer?
A)
−$2,726.
B)
$3,526.
C)
−$3,526.


1.0185 = 1 + 0.037(180/360)
1.0085 = 1 + 0.034(90/360)
767/760 – 1.0185/1.0085 = −0.00070579 × 5,000,000 = −$3,526
Note: The 1.0185/1.0085 is the present value of the floating rate side after 90 days.
作者: soverby    时间: 2012-4-3 15:52

Consider a semiannual equity swap based on an index at 985 and a fixed rate of 4.4%. 90 days after the initiation of the swap, the index is at 982 and London Interbank Offered Rate (LIBOR) is 4.6% for 90 days and 4.8% for 270 days. The value of the swap to the equity payer, based on a $2 million notional value is closest to:
A)
$22,564.
B)
$22,314.
C)
−$22,564.



−$22,564 is the value to the fixed-rate payer, thus $22,564 is the value to the equity return payer
作者: soverby    时间: 2012-4-3 15:52

A payer swaption gives its holder:
A)
an obligation to enter a swap in the future as the fixed-rate payer.
B)
the right to enter a swap in the future as the fixed-rate payer.
C)
the right to enter a swap in the future as the floating-rate payer.


A payer swaption give its holder the right to enter a swap in the future as the fixed-rate payer.
作者: soverby    时间: 2012-4-3 15:52

The writer of a receiver swaption has:
A)
an obligation to enter a swap in the future as the fixed-rate payer.
B)
the right to enter a swap in the future as the floating-rate payer.
C)
an obligation to enter a swap in the future as the floating-rate payer.


A receiver swaption gives its owner the right to receive fixed, the writer has an obligation to pay fixed.
作者: invic    时间: 2012-4-3 15:54

Mark Roberts anticipates utilizing a floating rate line of credit in 90 days to purchase $10 million of raw materials. To get protection against any increase in the expected London Interbank Offered Rate (LIBOR) yield curve, Roberts should:
A)
buy a receiver swaption.
B)
buy a payer swaption.
C)
write a receiver swaption.


A payer swaption will give Roberts the right to pay a fixed rate below market if rates rise
作者: invic    时间: 2012-4-3 15:55

An investor who anticipates the need to exit a pay-fixed interest rate swap prior to expiration might:
A)
buy a payer swaption.
B)
sell a payer swaption.
C)
buy a receiver swaption.


A receiver swaption will, if exercised, provide a fixed payment to offset the investor’s fixed obligation, and allow him to pay floating rates if they decrease.
作者: invic    时间: 2012-4-3 15:55

Which of the following statements regarding swaptions is least accurate? A swaption is often used to:
A)
create a synthetic bond position.
B)
hedge the rate on an anticipated swap transaction.
C)
provide the right to terminate a swap.


A swaption is like an option on a bond with payments equal to the fixed payments on the swap. The others are common uses of swaps.
作者: invic    时间: 2012-4-3 15:55

Which of the following is least likely to be a use of a swaption?
A)
Exiting an offsetting swap at the exercise date.
B)
Hedging the risk of a current fixed-rate commitment.
C)
Hedging the risk of an anticipated floating-rate obligation.


Swaptions will not be a good hedge for a current obligation since the swaption is for a swap in the future.
作者: invic    时间: 2012-4-3 15:56

Wanda Brunner, CFA, is contemplating adding a swaption to her portfolio. Which of the following is least likely her goal?
A)
interest rate speculation.
B)
provide short-term liquidity.
C)
lock in a fixed rate.


The three primary uses of swaptions are to lock in a fixed rate, interest rate speculation, and swap termination.
作者: invic    时间: 2012-4-3 15:56

Wanda Brunner, CFA, is contemplating adding a swaption to her portfolio. Which of the following is least likely her goal?
A)
interest rate speculation.
B)
provide short-term liquidity.
C)
lock in a fixed rate.


The three primary uses of swaptions are to lock in a fixed rate, interest rate speculation, and swap termination.
作者: invic    时间: 2012-4-3 15:57

Consider a 3-year quarterly-pay bond to be issued in 180 days with a 7% coupon. A 180-day put option on this bond, with an exercise price rate of 7%, has a payoff equal to that of a:
A)
receiver swap.
B)
receiver swaption.
C)
payer swaption.


The payoff on a payer swaption is equivalent to that of a put option on a bond as described in the question.
作者: invic    时间: 2012-4-3 15:57

Wanda Brunner, CFA, is contemplating adding a swaption to her portfolio. She makes the following two statements about the possible payoffs and cash flows of an interest rate swaption:
Statement 1:Exercising an in-the-money swaption effectively generates an annuity over the term of the underlying swap.
Statement 2:A positive payoff to a receiver swaption each quarter is the interest saved by receiving the higher fixed rate.

Which of the following statements are CORRECT?
A)
Both statements are correct.
B)
Only statement 1 is correct.
C)
Only statement 2 is correct.


Exercising an in-the-money swaption effectively generates an annuity over the term of the underlying swap. The amount of each annuity payment is the interest savings that result from paying a rate lower than the market rate under a payer swaption or the extra interest that results from receiving a higher rate under a receiver swaption.
作者: invic    时间: 2012-4-3 15:58

The LIBOR yield curve is:
180-days 5.2%
360-days 5.4%

What is the value of a 1-year semiannual-pay LIBOR based receiver swaption (expiring today) on a $10 million 1-year 4.8% swap?
A)
$0.
B)
$50,712.
C)
-$50,712.


First, find the discount factors. 1/(1+(0.052×(180/360))) = 0.97465887 and 1/(1+(0.054×(360/360))) = 0.94876660 Calculate the market fixed rate payments: (1 - 0.94876660) / (0.97465887 + 0.94876660) = 0.026637 and compare to the exercise rate payments 0.024. The value of the receiver swaption is zero since the exercise rate is below the market rate.
作者: invic    时间: 2012-4-3 15:58

The London Interbank Offered Rate (LIBOR) yield curve is:
What is the value of a LIBOR-based payer swaption (expiring today) on a $10 million 1-year 4.8% swap?
A)
−$50,712.
B)
$0.
C)
$50,712.


(0.026637 − 0.024) × (0.97465887 + 0.9487666) × 10,000,000 = $50,712.
作者: invic    时间: 2012-4-3 15:59

Cal Smart wrote a 90-day receiver swaption on a 1-year LIBOR-based semiannual-pay $10 million swap with an exercise rate of 3.8%. At expiration, the market rate and LIBOR yield curve are:

Fixed rate 3.763%
180-days 3.6%
360-days 3.8%

The payoff to the writer of the receiver swaption at expiration is closest to:

A)
$0.
B)
-$3,600.
C)
$3,600.

At expiration, the fixed rate is 3.763% which is below the exercise rate of 3.8%. The purchaser of the receiver swaption will exercise the option which allows them to receive a fixed rate of 3.8% from the writer of the option and pay the current rate of 3.763%.
The equivalent of two payments of (0.038 - 0.03763) × (180/360) × (10,000,000) will be made to the receiver swaption. One payment would have been received in 6 months and will be discounted back to the present at the 6-month rate. One payment would have been received in 12 months and will be discounted back to the present at the 12-month rate
The first payment, discounted to the present is (0.038 - 0.03763) × (180/360) × (10,000,000) × ( 1/1.018) = $1,817.28.
The second payment, discounted to the present is (0.038 - 0.03763) × (180/360) × (10,000,000) × ( 1/1.038) = $1,782.27
The total payoff for the writer is -$3,599.55.
作者: invic    时间: 2012-4-3 15:59

Current and potential credit risk in a swap are:
A)
not equal at the inception of the swap.
B)
equal at all times over the term of a swap.
C)
greatest between payment dates.


Current credit risk is the risk of not receiving a payment currently due, since there is none at the inception of the swap, current credit risk is zero. Potential credit risk is the risk that payments possibly due in the future will not be made.
作者: invic    时间: 2012-4-3 16:00

The credit risk of an interest-rate swap is greatest:
A)
just before the final payment must be made.
B)
late in the term.
C)
at the middle of the term.


The credit risk in an interest-rate swap is greatest at the middle of the swap.
作者: invic    时间: 2012-4-3 16:06

Which of the following statements related to credit risk during the life of a swap is most accurate:
A)
Credit risk is greatest at the beginning of the swap term because there are significant payments yet to be made over the remaining term of the swap.
B)
Credit risk is greatest in the middle of the swap term when both the creditworthiness of the counterparty may have deteriorated since swap initiation and there are significant payments yet to be made over the remaining term of the swap. (Study Session 17, LOS 57.i)
C)
Credit risk is greatest at the end of the swap term because creditworthiness of the counterparty is likely to have deteriorated since swap initiation.


Credit risk is greatest in the middle of the swap term when both the creditworthiness of the counterparty may have deteriorated since swap initiation and there are significant payments yet to be made over the remaining term of the swap. (Study Session 17, LOS 57.i)
作者: invic    时间: 2012-4-3 16:07

A swap spread is the difference between:
A)
the fixed rate on an interest rate swap and the rate on a Treasury bond of maturity equal to that of the swap.
B)
LIBOR and the fixed rate on the swap.
C)
the fixed-rate and floating-rate payment rates at the inception of the swap.


A swap spread is the difference between the fixed rate on an interest rate swap and a Treasury bond of maturity equal to that of the swap.
作者: invic    时间: 2012-4-3 16:07

The swap spread will increase with:
A)
an increase in the credit spread embedded in the reference.
B)
the variability of interest rates.
C)
a deterioration in one party’s credit.


The swap spread is the spread between the fixed-rate on a market-rate swap and the Treasury rate on a similar maturity note/bond. Since the fixed rate is calculated from the reference rate yield curve, it is increased as the credit spread embedded in the reference rate yield curve increases.
作者: invic    时间: 2012-4-3 16:08

A swap spread depends primarily on the:
A)
shape of the reference rate yield curve.
B)
general level of credit risk in the overall economy.
C)
credit of the parties involved in the swap.


The swap spread depends primarily on the general level of credit risk in the overall economy.
作者: invic    时间: 2012-4-3 16:08

For an interest rate swap, the swap spread is the difference between the:
A)
swap rate and the corresponding Treasury rate.
B)
fixed rate and the floating rate in a given period.
C)
average fixed rate and the average floating rate over the life of the contract.


The swap spread is the swap rate minus the corresponding Treasury rate.



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