Exam 10: Management of Translation Exposure

Company A swaps fixed-rate US dollar debt with Company B for floating-rate Canadian dollar debt.This is a

XYZ Corporation enters into a 6-year interest rate swap with a swap bank in which it agrees to pay the swap bank a fixed-rate of 9 percent annually on a notional amount of SF10,000,000 and receive LIBOR - ½ percent.As of the third reset date (i.e.mid-way through the 6 year agreement),calculate the price of the swap,assuming that the fixed-rate at which XYZ can borrow has increased to 10%.

Canada Corporation enters into a 2-year interest rate swap with Bank A in which it agrees to pay the swap bank a fixed-rate of 5 percent annually on a notional amount of US$1,000,000 and receive LIBOR - 1 percent.Determine the price of the swap on the first reset date,assuming that the fixed-rate at which Canada Corporation can borrow has stayed unchanged.

Use the following information to calculate the quality spread differential (QSD):

Which of the following is NOT true about swap banks?

The term interest rate swaps

Calculate the quality spread differential (QSD):

The following information is given. ABC Inc.and XYZ Inc.have agreed to swap their debt payments so that each firm gets its preferred debt terms.They can arrange an interest rate swap through Big Bank.Big bank charges 0.15% for its services.The remaining savings from the interest rate swap are equally shared by A and B. QSD: 1% .25% = .75%; after bank fees: .75% .15% = .60% savings available a)Does ABC Inc.prefer fixed or floating rate debt? What rate does it pay on its preferred debt? b)Does XYZ Inc.prefer fixed or floating rate debt? What rate does it pay on its preferred debt? c)What are the total interest savings available in this interest rate swap? d)Which company has a better credit rating?

The primary reasons for a counterparty to use a currency swap are:

Swap bank quotes 5.40-5.70 for the euro.This means the swap bank will

Suppose ABC Investment Banker,Ltd.is quoting swap rates as follows: 7.50 - 7.85 annually against six-month dollar LIBOR for dollars,and 11.00 - 11.30 percent annually against six-month dollar LIBOR for British pound sterling.ABC would enter into a $/£ currency swap in which:

Some of the risks that a swap dealer confronts are "basis risk" and "sovereign risk." They are defined as:

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

If company A and company B share the interest savings from the interest rate swap equally,company A will pay after the swap on its preferred debt:

The following information is given:

The following information is given. Boeing and Airbus have agreed to swap their debt payments so that each firm gets its preferred debt terms.Each firm will save the same amount in percentage terms. a)Does Boeing prefer fixed or floating rate debt? What rate does it pay on its preferred debt? b)Does Airbus prefer fixed or floating rate debt? What rate does it pay on its preferred debt? c)What are the total interest savings available in this interest rate swap? d)Which company has the advantage in fixed rate debt?

Examples of "single-currency interest rate swap" and "cross-currency interest rate swap" are:

Find QSD

Which firms will benefit from a currency swap?

Which combination of the following statements is true about the risks that a swap dealer confronts: (i)- interest rate risk (ii)- basis risk (iii)- exchange rate risk (iv)- political risk (v)- sovereign risk