WorksheetsSWAP Derivative
Total questions: 15
Worksheet time: 30mins
_____ contracts are equivalent to a series of forward contracts.
future
option
swap
derivative
Following swap entails exchange of only interest payments
Interest rate swaps
Currency swaps
Swaptions
Aisha and Naira decided to enter into a financial agreement. What does a plain vanilla swap usually involve?
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 in the financial market 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 ABC and XYZ have been offered the following rates per annum:
Company ABC: Fixed rate of 8% or floating rate equal to LIBOR
Company XYZ: Fixed rate of 8.8% or floating rate equal to LIBOR
Company XYZ requires a fixed-rate investment; company ABC 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
A Fixed-for-floating currency swap is a swap where
floating interest rate in one currency is exchanged for a fixed interest rate in another currency
Floating interest rate in one currency is exchanged for a floating interest rate in another currency.
Fixed interest rate in one currency is exchanged for a fixed interest rate in another currency
None of the above
Quantos Swaps are
Quantitative swaps that are applied on underlying other than interest rates
An agreement to exchange to total quantitative return on either a floating or fixed rate of interest
Swaps where a rate observed in one currency is applied to a principal amount in another currency
None of the above
Which of the following derivatives is classified as a contingent claim?
Futures contracts
Interest rate swaps
Credit default swaps
In a financial agreement known as an interest rate swap, what do two parties agree to exchange?
Series of cash flows.
Protection from the credit seller.
Right to purchase the underlying.
Forward commitments subject to default are:
forwards and futures.
futures and interest rate swaps.
interest rate swaps and forwards.
A credit derivative is a financial contract in which the:
bank provides a credit guarantee to both the buyer and the seller.
seller offers protection to the buyer against the credit risk of a third party.
the buyer and seller provide collateral at the beginning of the contract.
A derivative is best described as a financial instrument that derives its performance by
Passing through the returns of the stock market.
Replicating the performance of the stock market.
Transforming the performance of the stock market.
