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WorksheetsDERIVATIVES QUIZ 8
Total questions: 6
Worksheet time: 7mins
A plain vanilla swap usually involves:
Swapping debt maturities
Swapping fixed rate payments for floating rate payments
Swapping interest rate tax liabilities
Swapping debt principal payments
Swaps are mainly used to reduce ______ risk
Counterparty
Market
Country
Operational
The most important use for swaps is for
Hedging
Speculation
Switching views or positions
Note of the above
Interest swaps is equal to:
Arithmetic average of forward rates
Geometric average of forward rates
Weighted average of forward rates
None of the above
Usually, interest rate swaps are done
Between the counterparties
Between government regulatory agencies
Under the supervision of the World Bank
By financial institutions
Companies X and Y have been offered the following rates per annum:
Company X: Fixed rate of 8% or floating rate equal to LIBOR
Company Y: Fixed rate of 8.8% or floating rate equal to LIBOR
Company Y requires a fixed-rate investment; company X requires a floating-rate investment.
In case they both enter a swap agreement based on their preferences, what is the maximum total gain of both parties (3 min):
0.8%
0.8% - intermediation fees
0.4% – (intermediation fees / 2)
None of the above
