Exam 9: Swaps and Interest Rate Derivatives

theoretical principal underlying the swap is termed the

In the swap market,the reference amount against which the interest is calculated is known as the

Currency swaps are often used to provide long-term financing in foreign currencies but NOT because

Axil Corp.has not tapped the Deutsche mark public debt market because of concern about a likely appreciation of that currency and only wishes to be a floating-rate dollar borrower,which it can be at LIBOR + 1%.Bevel Corp.strongly prefers fixed-rate DM debt,but it must pay 1.5% more than the 6 1/4% coupon that Axil's DM notes would carry.Bevel,however,can obtain Eurodollars at LIBOR + ½%. -What is the maximum possible cost savings to Bevel from engaging in a currency swap with Axil?

Swaps are primarily of value because they permit firms to

__________ swap is an agreement between two parties to exchange interest payments for a specific maturity in an agreed upon notional amount.

An)__________ is a contract that fixes an interest rate today on a future loan or deposit

Suppose a U.S.corporation wants to secure fixed-rate funds in pounds in order to reduce its pound exposure,but is hampered in doing so because it is a relatively unknown credit in the British financial market.In contrast,a British company that is well established in its own country may desire floating-rate dollar financing,but is relatively unknown in the U.S.financial market.What is the most appropriate form of swap for these two parties?

Company X,a low-rated firm,desires a fixed-rate,long-term loan.X presently has access to floating interest rate funds at a margin of 1.25% over LIBOR.Its direct borrowing cost is 11% in the fixed-rate bond market.In contrast,company Y,which prefers a floating-rate loan,has access to fixed-rate funds in the Eurodollar bond market at 9% and floating-rate funds at LIBOR + 1/4%.Suppose they split the cost savings. -How much would X pay for its fixed-rate funds?

What is the name of the debt instruments with a high coupon in earlier payment periods and a lower coupon in later payment periods?

If the world capital market were fully integrated,the incentive to swap would be ____ because ____ arbitrage opportunities would exist.

a __________ swaps,two parties exchange floating interest payments based on different reference rates.

The economic benefits associated with swaps may derive from all of the following EXCEPT

Axil Corp.has not tapped the Deutsche mark public debt market because of concern about a likely appreciation of that currency and only wishes to be a floating-rate dollar borrower,which it can be at LIBOR + 1%.Bevel Corp.strongly prefers fixed-rate DM debt,but it must pay 1.5% more than the 6 1/4% coupon that Axil's DM notes would carry.Bevel,however,can obtain Eurodollars at LIBOR + ½%. -What is the maximum possible cost savings to Axil from engaging in a currency swap with Bevel?

Suppose a bank charges .8% to arrange the swap and Axil and Bevel split the resulting cost savings.Then Axil will pay ___ for its floating-rate money and Bevel will pay ___ for its fixed-rate money.

A currency swap is equivalent to a

________ is a cash-settled,over-the-counter forward contract that allows a company to fix an interest rate to be applied to a specified future interest period on a notional principal amount.

A _________ future is a cash-settled futures contract for a three-month $1,000,000 eurodollar deposit that pays LIBOR.

A currency swap is most similar in economic purpose to a

the swap market,the reference amount against which the interest is calculated is known as the