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Exam 24: Swaps

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Question 1

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24-41 In the derivatives markets,the highest transactions costs are highest for

A) options.
B) futures.
C) forwards.
D) swaps.
E) currencies.

F) D) and E)
G) A) and B)

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Question 2

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24-47 The cash flows that actually are paid on an interest rate swap depend on

A) the market's expectations of future short-term interest rates.
B) upfront fee payments.
C) varying notional values underlying the swap.
D) special interest rate terms and indexes.
E) actual market rates that materialize over the life of the swap contract.

F) B) and C)
G) A) and C)

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Question 3

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24-54 During the most recent financial crisis,the FI segment that was most negatively affected by credit default swaps was

24-16 The fastest growing group of swaps in recent years has been those designed to help FIs manage interest rate risk.

24-36 A bank with a strong positive leverage adjusted duration gap can hedge their exposure to interest rate increases by entering into

24-67 If a US bank has variable-rate assets in US dollars and fixed-rate liabilities in Euros,the bank is exposed to

24-13 Determining the pricing of a swap agreement requires the calculation of expected one- year rates from the Treasury yield curve that is accomplished by calculating the spot or zero-coupon discount yield curve.

24-73 Which of the following is NOT true?

24-25 In recent years,the fastest growing type of swap agreement has been a fixed-fixed currency swap.

24-43 In the derivatives markets,the instrument with the longest potential maturity is

24-18 A pure credit swap is similar to buying credit insurance.

24-9 The party in a swap that receives fixed-rate payments will always have zero basis risk since the fixed-rate swap payments can be structured to cover the fixed-rate liability payments.

24-20 One reason for the rapid growth of the OTC interest rate and foreign exchange swap markets is that banks are not required to allocate any capital toward their usage.

24-79 What will be the net after-swap cost of funds for the bank if the cash market liabilities are included in the analysis?

24-8 One reason for basis risk in an interest rate swap is that changes in the index on the variable rate portion of the swap may not be perfectly correlated with changes in the index on the cash balance sheet portion of the liabilities.

24-3 An interest rate swap is essentially a series of forward contracts on interest rates.

24-1 The extreme growth of the swap market has raised concern about the credit risk exposures of banks engaging in this market.

24-32 Policies established by The International Swaps and Derivatives Association (ISDA)forbid swap contracts to be made between parties of different credit standing.

24-4 In a conventional interest rate swap agreement,the swap buyer agrees to make a number of fixed interest rate payments to the swap seller.

24-35 In terms of valuation,a 12-year interest rate swap can be can be considered in terms of