A major risk faced by a swap dealer is exchange rate

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Mathematical Applications for the Management, Life, and Social Sciences
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Chapter 3 / Exercise 46
Mathematical Applications for the Management, Life, and Social Sciences
Harshbarger
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49. A major risk faced by a swap dealer is exchange rate risk. This is A. The probability that a foreign counterparty will default in a currency swap.B. The probability that either counterparty defaults in a currency swap.C. The probability exchange rates will move against the dealer.D. None of the above
50. A major risk faced by a swap dealer is mismatch risk. This is
51. Some of the risks that a swap dealer confronts are "basis risk" and "sovereign risk." They are defined as:
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Mathematical Applications for the Management, Life, and Social Sciences
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Chapter 3 / Exercise 46
Mathematical Applications for the Management, Life, and Social Sciences
Harshbarger
Expert Verified
Chapter 14 Interest Rate and Currency Swaps52. A major risk faced by a swap dealer is sovereign risk. This is
53. In an efficient market without barriers to capital flows, the cost-savings argument of the QSD is difficult to accept, because: A. It implies that an arbitrage opportunity exists because of some mispricing of the default risk premiums on different types of debt instruments.B. It implies that an arbitrage opportunity exists because of some mispricing of the exchange rates on different maturities of forward contracts.C. None of the above
Essay Questions54. Come up with a swap (exchange of interest and principal) for parties A and B who have the following borrowing opportunities.14-23
Chapter 14 Interest Rate and Currency Swaps55. Suppose that the swap that you proposed in question 2 is now 4 years old (i.e. there is exactly one year to go on the swap). The fourth payment has already been made. If the spot exchange

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