Multiple Choice
1.The swap fixed rate is also called the swap _________.
a.price
b.value
c.tenor
d.notional value
2.Tenor refers to
a.the underlying currency behind a swap.
b.the length of time associated with the swap agreement.
c.the present value of the swap agreement.
d.the face value of the swap.
3.In a swap motivated by credit differentials, a firm should borrow in the market where
a.it can borrow at the cheapest rate.
b.it can borrow for the longest period.
c.it has an absolute advantage.
d.it has a comparative advantage.
4.The swap floating rate usually is based on
a.the prime rate.
b.Libor.
c.the T-bill rate.
d.the call money rate.
5.Another term for the swap dealer is
a.swap bank.
b.floating rate payer.
c.fixed rate payer.
d.speculator.
6.An organization that simplifies entering into a swap is __________.
a.FDIC
b.SIPC
c.NCUA
d.ISDA
7.Which of the following is most correct?
a.The fixed rate payer always remits a check.
b.The floating rate payer always remits a check.
c.Both parties always remit a check.
d.One party remits a difference check.
8. The size of the interest rate payment depends on
a.the notional value.
b.the tenor of the swap.
c.the credit risk of the parties involved.
d.the swap value.
9. A type of risk inherent in swaps that is not inherent in listed options is
a.market risk.
b.counterparty risk.
c.the risk of a price decline.
d.the risk of a price rise.
10. Regarding interest rate swaps, all of the following are true except
a.you may either pay or receive the floating rate.
b.you may either pay or receive the fixed rate.
c.the principal changes hands at the beginning of the swap.
d.interest may be determined in advance or in arrears.
11. The difference in borrowing rates between two firms is the _____ spread.
a.quality
b.comparative
c.absolute
d.market
12. Which of the following is true regarding foreign currency swaps?
a.Principal changes hands at the beginning of the swap only.
b.Principal changes hands at the end of the swap only.
c.Principal changes hands at the beginning and end of the swap.
d.Principal does not change hands.
13. A popular combination of two swaps is a _____ swap.
a.CIRCUS
b.CLOWN
c.DERBY
d.MUTUAL
14. A deferred swap is also called a _____ swap.
a.amortizing
b.accreting
c.floating for floating
d.forward start
15. An interest rate cap is similar to a
a.call option.
b.put option.
c.hedge wrapper.
d.covered call.
16.An interest rate cap is composed of
a.accreting swaps.
b.amortizing swaps.
c.caplets.
d.priority claims.
17.A long cap has a payoff diagram similar to that of a
a.covered call.
b.long put.
c.short call.
d.long call.
18.A long floor has a payoff diagram similar to that of a
a.covered call.
b.long put.
c.short call.
d.long call.
19.An option on a swap is a ________.
a.swaption
b.caplet
c.floorlet
d.swaplet
20.A swaption involves a __________.
a.good faith deposit
b.downpayment
c.premium
d.short sale