9. Other types of derivatives There are several different types of derivative securities, including forwards, futures, swaps, Inverse floaters, and structured notes. These securities may be used to manage the risks of business organizations or to speculate on certain market events. Consider the descriptions or characteristics in the following table and indicate the type of derivative to which each corresponds: a Type of Derivative Description or Characteristic with this type of derivative, two parties exchange interest payments but not the prindpal on their loans. For both borrowers, the principal amount is called the notional principal, and the interest rate for the floating-rate component of the transaction is tied to the LIBOR This type of derivative consists of a floating-rate debe security in which the coupon rate moves inversely with short term market interest rates, while the discount rate used to value the security moves directly with the short-term market rates. This type of derivative can be used to: (1) hedge against exchange rate fluctuations or (2) obtain less expensive debt by borrowing at the best possible rate, regardless of the currency, and then swapping for debt in the necessary currency This type of derivative security often serves several useful economic purposes, including: (1) providing opportunities for speculation, (2) allowing for the hedging of risk, and (3) providing additional liquidity to those financial intermediaries that make amortized loans and can then securitize and sell their loans, such as mortgages 9. Other types of derivatives There are several different types of derivative securities, including forwards, futures, swaps, inverse floaters, and structured notes. These securities may be used to manage the risks of business organizations or to speculate on certain market events. Consider the descriptions or characteristics in the following table and indicate the type of derivative to which each corresponds: Type of Derivative Interest rate swap Inverse floater Description or Characteristic with this type of derivative, two parties exchange interest payments but not the principal on their loans. For both borrowers, the principal amount is called the notional principal, and the interest rate for the floating-rate component of the transaction is tied to the LIBOR This type of derivative consists of a floating-rate dubt security in which the coupon rate moves inversely with short-term market interest rates, while the discount rate used to value the security moves directly with the short term market rates This type of derivative can be used to: (1) hedge against exchange rate fluctuations or (2) obtainless expensive debt by borrowing at the best possible rate, regardless of the currency and then swapping for debt in the necessary currency Currency swap Emma is an investor interested in purchasing securities. The securities' cash flows are derived from the interest payments made on collateralized loans, which derivative should she choose? Interest rate swap Interest rate future Structured notit underpriced Currency swap overpriced An investor believes the 15-year Treasury vield is too low. This Investor thinks a Treasury bond with 15 years to maturity is
