1HOUR TIME LIMIT QUESTION 1

1. An FRA differs from an interest rate swap in which of the following ways?

   Traditionally the payment in an FRA is delayed

   FRAs are used only by banks and swaps are used only by corporations

   An FRA has more credit risk

   FRAs are federally regulated

1 points

QUESTION 2

1. Which of the following is a 1 x 4 FRA?

   The FRA expires in one month, and the underlying Eurodollar expires in three months.

   The FRA expires in four months, and the underlying Eurodollar expires in one month.

   The FRA expires in one month, and the underlying Eurodollar expires in five months.

   The FRA expires in one month, and the underlying Eurodollar expires in four months.

1 points

QUESTION 3

1. The payoff to the holder of a long FRA on 90-day LIBOR with a fixed rate of 8.75 percent, a notional amount of $20 million if the underlying is 9 percent at expiration is

   -$12,225

   -$12,500

   $12,500

   $12,225

1 points

QUESTION 4

1. The fixed rate on an FRA expiring in 30 days on 180-day LIBOR with the 30-day rate being 5 percent and the 210 day rate being 6 percent is

   6.14 percent

   6 percent

   5.15 percent

   5.5 percent

1 points

QUESTION 5

1. Which of the following best describes an interest rate cap?

   a call option spread

   a series of forward contracts

   a cash-and-carry hedge

   a series of interest rate calls

1 points

QUESTION 6

1. The advantage of a collar over a cap is

   it offers the possibility of greater returns

   it lowers the out-of-pocket cost

   it eliminates the risk

   it has lower transaction costs

1 points

QUESTION 7

1. A long position in an interest rate call would be appropriate for which of the following situations:

   a borrower expects rising interest rates

   a derivatives dealer is exposed to the risk of falling interest rates

   a bond trader expects falling interest rates

   a lender expects rising interest rates

1 points

QUESTION 8

1. The writer of a agreement makes settlement payments when LIBOR is less than the striking rate of the agreement.

   Floor

   Cap

   Swap

   Collar

1 points

QUESTION 9

1. A company buys an interest rate cap that pays the difference between LIBOR and 8% if LIBOR exceeds 8%. Current LIBOR is 7%. The amount of the option is $25,000,000, and the settlement is every 6 months. Assume a 360 day year. Find the payoff if LIBOR closes at 8.2%.

   $0.00

   $50,000.00

   $25,000.00

   -$25,000.00

1 points

QUESTION 10

1. A bank buys an interest rate floor in conjunction with a loan it holds that will make four semiannual payments starting six months from now. The floor has a strike of 9 percent. LIBOR at the beginning of the four payment periods is 10, 11, 8, and 8.6 percent. On which dates will the floor writer make a payment to the bank?

   now and in 24 months

   in 6, 12, 18 and 24 months

   in 12 and 18 months

   in 18 and 24 months