1. Swaps can be used to hedge against a stream of risky payments

True

False

2. Which of the following describes the way a LIBOR-in-arrears swap differs from a plain vanilla interest rate swap?

a. Interest is paid at the end of the accrual period in a LIBOR-in-arrears swap

b. Interest is paid at the beginning of the accrual period in a LIBOR-in-arrears swap

c. Neither floating nor fixed payments are made until the end of the life of the swap

d. No floating interest is paid until the end of the life of the swap in a LIBOR-in-arrears swap, but fixed payments are made throughout the life of the swap

3. A fixed-for-fixed currency swap:

a. Is equivalent to a long position in one bond and a short position in another bond

b. Involves no exchange of principals at the beginning of its life

c. Is equivalent to a portfolio of FRAs

d. Is worth the same whether or not principals are exchanged

4. A floating-for-floating currency swap is equivalent to:

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

b. None of the options

c. Two interest rate swaps, one in each currency

d. A fixed-for-fixed currency swap and one interest rate swap