Swap Markets

This question bank verified by Studydeets

All Questions

Question 1

Free

Multiple Choice

Financial institutions with interest rate-sensitive liabilities than assets are affected by rising interest rates.

Choose correct answer/s

more; adversely

fewer; adversely

more; favorably

none of the above

Check answer

Question 2

Free

Multiple Choice

Which of the following statements is incorrect?

Choose correct answer/s

Interest rate swaps are sometimes used by financial institutions and other firms for speculative purposes.

A primary reason for the popularity of interest rate swaps is the existence of market imperfections.

Swaps are necessary for some financial institutions to obtain the maturities or rate sensitivities on funds that they desire.

Most financial institutions that anticipate that interest rates will move in an unfavorable direction do not hedge their positions.

Check answer

Question 3

Free

Multiple Choice

Savings institutions participate in the swap market primarily to

Choose correct answer/s

serve as an intermediary by matching up two parties in a swap.

serve as a dealer by taking the counterparty position in a swap.

reduce interest rate risk.

none of the above

Check answer

Question 4

Free

Multiple Choice

In a swap arrangement, the most common index used for floating-rate payments is the

Choose correct answer/s

coupon rate on existing bonds.

stock dividend rate based on a U.S. stock index.

London Interbank Offer Rate (LIBOR).

Treasury bond yield.

Check answer

Question 5

Free

Multiple Choice

Swap transactions are only used to

Choose correct answer/s

hedge against upward interest rate movements.

hedge against downward interest rate movements.

speculate.

none of the above

Check answer

Question 6

Multiple Choice

If a firm negotiates a plain vanilla swap, it will provide payments in exchange for payments.

Choose correct answer/s

fixed-rate; floating-rate

fixed-rate euro; fixed-rate dollar

stock dividend; fixed-rate

stock dividend; floating-rate

To unlock the question

Question 7

Multiple Choice

____ swap allows the party making fixed payments to extend the swap period.

Choose correct answer/s

forward

extendable

callable

putable

To unlock the question

Question 8

Multiple Choice

____ swap allows the party making fixed-rate payments to terminate the swap prior to maturity.

Choose correct answer/s

forward

extendable

callable

putable

To unlock the question

Question 9

Multiple Choice

A ____ swap involves the exchange of fixed-rate payments for floating-rate payments that are capped.

Choose correct answer/s

rate-capped

zero-coupon-for-floating

callable

putable

To unlock the question

Question 10

Multiple Choice

The option on a callable swap would most likely be exercised if interest rates

Choose correct answer/s

rise.

fall.

remain constant.

remain somewhat stable.

To unlock the question

Question 11

Multiple Choice

The option on a putable swap would most likely be exercised if interest rates

Choose correct answer/s

rise.

fall.

remain constant.

remain somewhat stable.

To unlock the question

Question 12

Multiple Choice

____ swap involves an exchange of interest payments over a swap period that does not begin until a specified future point in time.

Choose correct answer/s

forward

extendable

callable

putable

To unlock the question

Question 13

Multiple Choice

Assume a financial institution has rate-sensitive liabilities and rate-sensitive assets. If this institution negotiates a rate-capped swap, its payments will be capped, and it will anup-front premium in exchange for the cap.

Choose correct answer/s

outflow; receive

outflow; pay

inflow; pay

inflow; receive

To unlock the question

Question 14

True/False

An equity swap involves the exchange of interest payments for payments linked to the degree of change in a bond index.

Choose correct answer/s

True

False

To unlock the question

Question 15

Multiple Choice

Assume a U.S. savings institution funds its fixed-rate mortgages by attracting short-term deposits. If it engages in an interest rate swap, but the index on the swap does not move in perfecttandem with its cost of deposits, this reflects

Choose correct answer/s

sovereign risk.

basis risk.

credit risk.

none of the above

To unlock the question

Question 16

Multiple Choice

____ risk prevents an interest rate swap from completely eliminating a financial institution's exposure to interest rate risk.

Choose correct answer/s

Credit

Basis

Sovereign

None of the above

To unlock the question

Question 17

Multiple Choice

____ risk in a swap is typically not overwhelming because the affected party can simply discontinue its payments to the other party.

Choose correct answer/s

Basis

Credit

Sovereign

None of the above

To unlock the question

Question 18

True/False

Sovereign risk differs from credit risk because it is dependent on the financial status of the government rather than the counterparty itself.

Choose correct answer/s

True

False

To unlock the question

Question 19

Multiple Choice

In a period when interest rates are expected to rise, institutions will want a fixed-for-floating swap, and the fixed rate specified on interest rate swaps will be under these conditions.

Choose correct answer/s

many; lower

many; higher

few; lower

few; higher

To unlock the question

Question 20

Multiple Choice

An interest rate swap agreement indicates the ____ value, is represents the principal amount to which interest rates are applied to determine the interest payments involved.

Choose correct answer/s

vanilla

LIBOR

programmed

notional

To unlock the question

Swap Markets

Financial institutions with ____ interest rate-sensitive liabilities than assets are ____ affected by rising interest rates.

Which of the following statements is incorrect?

Savings institutions participate in the swap market primarily to

In a swap arrangement, the most common index used for floating-rate payments is the

Swap transactions are only used to

If a firm negotiates a plain vanilla swap, it will provide ____ payments in exchange for ____ payments.

____ swap allows the party making fixed payments to extend the swap period.

____ swap allows the party making fixed-rate payments to terminate the swap prior to maturity.

A ____ swap involves the exchange of fixed-rate payments for floating-rate payments that are capped.

The option on a callable swap would most likely be exercised if interest rates

The option on a putable swap would most likely be exercised if interest rates

____ swap involves an exchange of interest payments over a swap period that does not begin until a specified future point in time.

Assume a financial institution has rate-sensitive liabilities and rate-sensitive assets. If this institution negotiates a rate-capped swap, its ____ payments will be capped, and it will ____ anup-front premium in exchange for the cap.

An equity swap involves the exchange of interest payments for payments linked to the degree of change in a bond index.

Assume a U.S. savings institution funds its fixed-rate mortgages by attracting short-term deposits. If it engages in an interest rate swap, but the index on the swap does not move in perfecttandem with its cost of deposits, this reflects

____ risk prevents an interest rate swap from completely eliminating a financial institution's exposure to interest rate risk.

____ risk in a swap is typically not overwhelming because the affected party can simply discontinue its payments to the other party.

Sovereign risk differs from credit risk because it is dependent on the financial status of the government rather than the counterparty itself.

In a period when interest rates are expected to rise, ____ institutions will want a fixed-for-floating swap, and the fixed rate specified on interest rate swaps will be ____ under these conditions.

An interest rate swap agreement indicates the ____ value, is represents the principal amount to which interest rates are applied to determine the interest payments involved.

Financial institutions with interest rate-sensitive liabilities than assets are affected by rising interest rates.

If a firm negotiates a plain vanilla swap, it will provide payments in exchange for payments.

Assume a financial institution has rate-sensitive liabilities and rate-sensitive assets. If this institution negotiates a rate-capped swap, its payments will be capped, and it will anup-front premium in exchange for the cap.

In a period when interest rates are expected to rise, institutions will want a fixed-for-floating swap, and the fixed rate specified on interest rate swaps will be under these conditions.