Reading 71: Swap Markets and Contracts LOSb习题精选 2010, statements, following, currency

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LOS b: Define currency swaps.

Which of the following statements about a currency swap is TRUE?

A) Changes in exchange rates do not affect the swap payments.

B) Payments are netted at each settlement date.

C) If one party pays a fixed rate of interest, the other party must pay a floating rate.

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Swap payments are based on the notional amounts of each currency and either a fixed or floating rate for either or both parties. While changes in exchange rates might be reflected in interest rates, they have no direct effect on any of the payment amounts over the term of the swap.

 

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Consider a 1-year quarterly-pay $1,000,000 equity swap based on a fixed rate and an index return. The current fixed rate is 3.0 percent and the index is at 840. Below are the index level at each of the four settlement dates on the swap.

	Q1	Q2	Q3	Q4
Index	881	850	892.5	900

At the first settlement date, the equity-return payer in the swap will pay:

A) $40,810.

B) $4,638.

C) $41,310.

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The equity-return payer will pay the index return minus the fixed rate at the initiation of the swap.

[(881/840 – 1) – 0.0075] × 1,000,000 = $41,309.52

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An equity swap can specify that one party pay any of the following EXCEPT:

A) the return on a specific portfolio of three stocks including dividends.

B) the total return on a corporate bond.

C) the return on a single stock.

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A swap involving the return on a bond would not be an equity swap.

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When one party pays a fixed rate of interest in an equity swap, which of the following is least accurate?

A) The equity-return payer will gain if the equity return is zero.

B) The fixed-rate receiver will never get more than the fixed rate.

C) Unlike other swaps, in an equity swap the one-quarter-ahead payment is not known at the end of the previous quarter.

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If the periodic return on the equity is negative, the fixed-rate payer must pay the fixed rate plus the percentage of (negative) equity return, times the notional principal.

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A contract in which one party pays a fixed rate of interest on a notional amount in return for the return on a single stock, paid quarterly for four quarters, is a(n):

A) returns swap.

B) equity swap.

C) plain vanilla swap.

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A swap contract in which at least one party makes payments based on the return on an equity, portfolio, or market index, is called an equity swap.

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Which of the following statements is TRUE concerning the above diagram? Counterparty:

A) A will gain in the swap when interest rates increase.

B) B pays a fixed rate to counterparty A.

C) B will gain in the swap when interest rates increase.

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From the diagram, counterparty A pays fixed to and receives variable from counterparty B. As interest rates rise, counterparty B owes counterparty A higher variable payments.

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> >	Fixed> >	> >
Counterparty> >	???????????> >	Counterparty
A	???????????	B
	Variable

Which of the following statements is most accurate concerning the above diagram?

A) Counterparty A will gain in the swap when interest rates increase.

B) Counterparty B will gain in the swap when interest rates increase.

C) Counterparty B pays a fixed rate to counterparty A.

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From the diagram, counterparty A pays fixed to and receives variable from counterparty B. As interest rates rise, counterparty B owes counterparty A higher variable payments, while A’s obligations are fixed.

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Which of the following statements regarding a plain vanilla swap is FALSE?

A) Only a net payment is made on each settlement date.

B) The notional principal amounts are exchanged at contract initiation and at the termination of the swap.

C) If interest rates decrease, the swap has a negative value to the fixed rate payer.

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There is no exchange of the principal amount at the initiation or termination of a plain vanilla swap.

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A swap in which one party pays a fixed rate, one party pays a floating rate, and only a net payment is made on the settlement dates is referred to as a:

A) straight swap.

B) plain vanilla swap.

C) net swap.

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A swap in which one party pays a fixed rate, one party pays a floating rate, and only a net payment is made on the settlement dates is referred to as a plain vanilla swap.

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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.

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The net payment formula for the floating rate payer is:

Floating Rate Payment_t = (LIBOR_t-1 ? Swap Fixed Rate) × (# days in term / 360) × Notional Principal

If the result is positive, the floating-rate payer owes a net payment and if the result is negative, then the floating-rate payer receives a net inflow. Note: We are assuming a 360 day year.

Floating Rate Payment = (0.048 ? 0.065) × (30 / 360) × 10,000,000 = -$14,167.

Since the result is negative,123 Inc. will receive this amount.