Exam 21: Interest Rate Swaps, Cross-Currency Swaps and Credit Default

Discuss possible reasons why interest rate swap markets have formed and grown.

Consider the following five statements: i.Swaps may be used to achieve a lower cost of funds for a company. ii.In an interest rate swap,the two parties swap the principal amount plus the ongoing associated interest obligations. iii.An intermediated swap is said to be 'matched' when a bank enters into swaps with both firms involved in an interest rate swap. iv.A 'plain vanilla' swap is the fixed AUD to floating AUD swap. v.If an intermediary is involved in a swap between two parties,the intermediary will also provide the initial loan to both parties. How many of these statements are true and how many are false?

With a cross-currency swap the exchange rate used at the principal re-exchange date at maturity is based on the exchange rate at the beginning of the swap.

Which of the following statements regarding interest rate swaps is incorrect?

For an ordinary interest rate swap already in place,if counterparty A's obligation for one year is $100 000 and counterparty B's obligation is $120 000:

Which of the following statements regarding interest rate swaps is incorrect?

If a party in a matched swap defaults,the financial intermediary faces:

As of December 2010 the Bank for International Settlements (BIS)estimated the notional value of currency swaps was USD16 347 billion.Discuss possible reasons for the growth in currency swaps.

Whereas in the mid-1980s swap spreads might have been 50 basis points,a/an _______ basis-point spread is more common today.

Which of the following statements is NOT an advantage of a swap transaction?

A CDS protection buyer is a lender who seeks protection from credit risk associated with a particular debt issue and is willing to pay a premium to the CDS protection seller.

One of the key motives for a cross-currency swap is:

A credit default swap means:

An interest rate swap is similar to which of the following transactions?

The main type of interest rate:

Explain in the context of interest rate swaps what a matched swap is.

If a company expects interest rates to increase,which of the following strategies should the company consider?

A bank has intermediated a matched swap facility with two client companies.Which of the following statements best describes a matched swap?

The first interest rate swap involving the World Bank and IBM was arranged in:

An interest rate swap that involves two parties entering into agreements where floating for floating interest rate payments is called a money market swap.