Deri chap 7, 9, 10

A floating for floating currency swap is equivalent to

• Two interest rate swaps, one in each currency

• A fixed-for-fixed currency swap and one interest rate swap

• A fixed-for-fixed currency swap and two interest rate swaps, one in each currency

• None of the above

Which of the following describes an interest rate swap?

• The exchange of a fixed rate bond for a floating rate bond

• A portfolio of forward rate agreements

• An agreement to exchange interest at a fixed rate for interest at a floating rate

• All of the above

Which of the following is a use of a currency swap?

• To exchange an investment in one currency for an investment in another currency

• To exchange borrowing in one currency for borrowings in another currency

• To take advantage situations where the tax rates in two countries are different

• All of the above

Which of the following is true?

• OIS rates are less than the corresponding LIBOR rates

• OIS rates are greater than corresponding LIBOR rates

• OIS rates are sometimes greater and sometimes less than LIBOR rates

• OIS rates are equivalent to one-day LIBOR rates

Which of the following is a way of valuing interest rate swaps where LIBOR is exchanged for a fixed rate of interest?

• Assume that floating payments will equal forward LIBOR rates and discount net cash flows at the risk-free rate

• Assume that floating payments will equal forward OIS rates and discount net cash flows at the risk-free rate

• Assume that floating payments will equal forward LIBOR rates and discount net cash flows at the swap rate

• Assume that floating payments will equal forward OIS rates and discount net cash flows at the swap rate

Which of the following describes the five-year swap rate?

• The rate on a five-year loan to a AA-rated company

• The rate on a five-year loan to an A-rated company

• The rate that can be earned over five years from a series of short-term loans to AA-rated companies

• The rate that can be earned over five years from a series of short-term loans to A-rated companies

Which of the following is true for an interest rate swap?

• A swap is usually worth close to zero when it is first negotiated

• Each forward rate agreement underlying a swap is worth close to zero when the swap is first entered into

• Comparative advantage is a valid reason for entering into the swap

• None of the above

Which of the following describes a 3-month overnight indexed swap (OIS)?

• A fixed rate is exchanged for the overnight rate every day for three months

• LIBOR is exchanged for the overnight rate every day for three months

• The arithmetic average of overnight rates is exchanged for a fixed rate at the end of three months

• The geometric average of overnight rates is exchanged for a fixed rate at the end of three months

A company enters into an interest rate swap where it is paying fixed and receiving LIBOR. When interest rates increase, which of the following is true?

• The value of the swap to the company increases

• The value of the swap to the company decreases

• The value of the swap can either increase or decrease

• The value of the swap does not change providing the swap rate remains the same

Since the 2008 credit crisis

• LIBOR has replaced OIS as the discount rate for non-collateralized swaps

• OIS has replaced LIBOR as the discount rate for non-collateralized swaps

• LIBOR has replaced OIS as the discount rate for collateralized swaps

• OIS has replaced LIBOR as the discount rate for collateralized swaps