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Unformatted text preview: 14 Student: ___________________________________________________________________________ 1. The term interest rate swap A. refers to a "single-currency interest rate swap" shortened to "interest rate swap" B. involves "counterparties" who make a contractual agreement to exchange cash flows at periodic intervals C. can be "fixed-for-floating rate" or "fixed-for-fixed rate" D. All of the above 2. Examples of "single-currency interest rate swap" and "cross-currency interest rate swap" are: A . fixed-for-floating rate interest rate swap, where one counterparty exchanges the interest payments of a floating- rate debt obligations for fixed-rate interest payments of the other counter party B . fixed-for-fixed rate debt service (currency swap), where one counterparty exchanges the debt service obligations of a bond denominated in one currency for the debt service obligations of the other counter party denominated in another currency C. a) and b) D. none of the above 3. The primary reasons for a counterparty to use a currency swap are: A. to hedge and to speculate B. to play in the futures and forward markets C . to obtain debt financing in the swapped currency at an interest cost reduction brought about through comparative advantages each counterparty has in its national capital market, and the benefit of hedging long-run exchange rate exposure D. a) and b) 4. The size of the swap market is A. Measured by notational principal B. Over 7 trillion dollars C. Both a) and b) D. None of the above 5. Which combination of the following statements is true about a swap bank? (i) it is a generic term to describe a financial institution that facilitates swaps between counterparties (ii) it can be an international commercial bank (iii) it can be an investment bank (iv) it can be a merchant bank (v) it can be an independent operator A. (i) and (ii) B. (i), (ii) and (iii) C. (i), (ii), (iii) and (iv) D. (i), (ii), (iii), (iv) and (v) 6. A swap bank A. Can act as a broker, bringing together counterparties to a swap B. Can act as a dealer, standing ready to buy and sell swaps C. Both a) and b) D. Only sometimes a) but never ever b) 7. In the swap market, which position potentially carries greater risks, broker or dealer? A. Broker B. Dealer C. They are the same swaps, therefore the same risks. 8. Suppose the quote for a five-year swap with semiannual payments is 8.50—8.60 percent. The means: A. The swap bank will pay semiannual fixed-rate dollar payments of 8.50 percent against receiving six- month dollar LIBOR. B. The swap bank will receive semiannual fixed-rate dollar payments of 8.60 percent against paying six- month dollar LIBOR. C. a) and b) D. none of the above 9. Suppose the quote for a five-year swap with semiannual payments is 8.50—8.60 percent. The means: A. The swap bank will pay semiannual fixed-rate dollar payments of 8.60 percent against receiving six- month dollar LIBOR....
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