Question 1

Describe briefly the nature of a swap and its primary component.

Accepted Answer

The answer of Describe briefly the nature of a swap...

Question 2

Assume corn spot prices over the next 3 years are $2.20, $2.35, and $2.28, respectively. The original swap price was $2.30 per bushel. If cash settlement occurs, what transaction will the counter-party make in year 2 on a 5,000-bushel swap agreement?

Accepted Answer

A)  $250 payment 
B)  $250 receipt 
C)  $100 payment 
D)  $100 receipt

Question 3

A 6 month swaption on oil has a strike price of $15. With 3 month remaining, the fixed price on the swap is $16.00. If an investor exercises the swaption and enters into a new swap, what is the net cash flow at settlement?

Accepted Answer

A)  $15.00 paid 
B)  $16.00 received 
C)  $1.00 paid 
D)  $1.00 received

Exam 8: Swaps

Describe briefly the nature of a swap and its primary component.

Assume corn spot prices over the next 3 years are $2.20, $2.35, and $2.28, respectively. The original swap price was $2.30 per bushel. If cash settlement occurs, what transaction will the counter-party make in year 2 on a 5,000-bushel swap agreement?

A 6 month swaption on oil has a strike price of $15. With 3 month remaining, the fixed price on the swap is $16.00. If an investor exercises the swaption and enters into a new swap, what is the net cash flow at settlement?