Which of the following distinguishes equity swaps from currency swaps? a. equity

Question

Which of the following distinguishes equity swaps from currency swaps?

            a.         equity swap payments are always hedged

            b.         equity swap payments are made on the first day of the month

            c.         equity swap payments can be negative

            d.         equity swap payments have more credit risk

            e.         none of the above

Find the upcoming net payment in a plain vanilla interest rate swap in which the fixed party pays 10 percent and the floating rate for the upcoming payment is 9.5 percent. The notional amount is $20 million and payments are based on the assumption of 180 days in the payment period and 360 days in a year.

            a.         fixed payer pays $1,950,000

                        b.         fixed payer pays $950,000

                        c.         floating payer pays $1 million

                        d.         floating payer pays $50,000

                        e.         fixed payer pays $50,000

Find the upcoming payment interest payments in a currency swap in which party A pays U. S. dollars at a fixed rate of 5 percent on notional amount of $50 million and party B pays Swiss francs at a fixed rate of 4 percent on notional amount of SF35 million. Payments are annual under the assumption of 360 days in a year, and there is no netting.

                        a.         party A pays $2,500,000, and party B pays SF1,400,000

                        b.         party A pays SF1,400,000, and party B pays $2,500,000

                        c.         party A pays SF1,750,000, and party B pays SF1,400,000

                        d.         party A pays $2,500,000, and party B pays $2,000,000

                        e.         party A pays $50 million, and party B pays SF35 million

Find the net payment on an equity swap in which party A pays the return on a stock index and party B pays a fixed rate of 6 percent. The notional amount is $10 million. The stock index starts off at 1,000 and is at 1,055.15 at the end of the period. The interest payment is calculated based on 180 days in the period and 360 days in the year.

                        a.         party B pays $851,500

                        b.         parry B pays $48,500

                        c.         party B pays $251,500

                        d.         party A pays $251,500

                        e.         party A pays $851,500

Which of the following is not a way to terminate a swap:

            a.         the two counterparties cash settle the market value

            b.         enter into an opposite swap with another counterparty

            c.         hold the swap to its maturity date

            d.         use a forward contract or option on the swap to enter into an offsetting swap

            e.         borrow the notional amount and pay off the counterparty

Interest rate swaps can be used for all of the following purposes except:

            a.         to borrow at the prime rate

            b.         to convert a fixed-rate loan into a floating-rate loan

            c.         to convert a floating-rate loan into a fixed-rate loan

            d.         to speculate on interest rates

e.         to hedge interest rate risk

Explanation / Answer

1. b.         equity swap payments are made on the first day of the month

2. c.         floating payer pays $1 million

3. a.         party A pays $2,500,000, and party B pays SF1,400,000

4.d.         party A pays $251,500

5. b.         enter into an opposite swap with another counterparty

6.a.         to borrow at the prime rate

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