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Assume that you have entered into a swap agreement for a notional of 100M USD under which every 6 months you agree to pay LIBOR

Assume that you have entered into a swap agreement for a notional of 100M USD under which every 6 months you agree to pay LIBOR and receive 4% fixed. On the date you signed the contract LIBOR is 3%. Six months later LIBOR is 3.5%. Your actual payment net of what you receive at the first payment date equals to (negative sign means you receive)

A)0 USD.

B)-0.5 USD.

C)0.5 USD

D)-0.25 USD

10 points

Question 2

  1. Suppose you enter into an interest rate swap where you are receiving floating and paying fixed. Which one of the following is true?

    A)Your credit risk is greater when the term structure is flat.

    B)Your credit risk is greater when the term structure is downward sloping than when it is upward sloping.

    C)Your credit risk exposure increases when interest rates decline unexpectedly.

    D)Your credit risk exposure increases when interest rates increase unexpectedly.

10 points

Question 3

  1. Assume that you have entered into a fixed for fixed currency swap agreement under which every 6 months you agree to pay 3% on a notional of 100M USD and receive 4% on a notional of 100M EUR. On the date you signed the contract the USD for EUR spot exchange rate is 1.3. Six months later USD for EUR spot exchange rate is 1.4. Your actual payment net of what you receive at the first payment date equals to (negative sign means you receive)

    A)1.3M USD.

    B)-1.3M USD

    C)1.10M USD

    D)-1.10M USD

10 points

Question 4

  1. Assume that you have entered into a swap agreement for a notional of 100M USD under which every 6 months you agree to pay LIBOR and receive 4% fixed. On the date you signed the contract LIBOR is 3%. Six months later LIBOR is 3.5%. Your theoretical payment at the first payment date equals to

    A)2M USD.

    B)1.75M USD

    C)1.5M USD

    D)0.25M USD

10 points

Question 5

  1. In a fixed for fixed currency swap, the two parties

    A)exchange notionals when they enter the swap agreement.

    B)exchange notionals at expiration of the swap agreement.

    C)never exchange notionals

    D)both a) and b)

10 points

Question 6

  1. Which of the following is true

    A)Principals are not usually exchanged in a currency swap

    B)The principal amounts usually flow in the opposite direction to interest payments at the beginning of a currency swap and in the same direction as interest payments at the end of the swap

    C)The principal amounts usually flow in the same direction as interest payments at the beginning of a currency swap and in the opposite direction to interest payments at the end of the swap.

    D)Principals are not usually specified in a currency swap

10 points

Question 7

  1. You purchase one IBM March 100 put contract for a put premium of $6. What is the maximum profit that you could gain from this strategy?

    A.

    $10,000.

    B.

    $10,600.

    C.

    $9,400.

    D.

    $9,000.

    E.

    None of the above

10 points

Question 8

  1. Assume that you have entered into a fixed for fixed currency swap agreement under which every 6 months you agree to pay 3% on a notional of 100M USD and receive 4% on a notional of 100M EUR. On the date you signed the contract the USD for EUR spot exchange rate is 1.3. Six months later USD for EUR spot exchange rate is 1.4. Your theoretical payment at the first payment date equals to.

    A)1.5M USD

    B)1.5M EUR.

    C)1.95M USD

    D)1.15M EUR

10 points

Question 9

  1. The intrinsic value of an in-the-money put option is equal to

    A)the stock price minus the exercise price.

    B)the put premium.

    C)Zero.

    D)the exercise price minus the stock price.

    E)none of the above.

10 points

Question 10

  1. A fixed for fixed currency swap is an agreement under which two parties exchange.

    A)a fixed interest payment at date t for a a fixed interest payment at date t+1 in the same currency.

    B)a fixed interest payment at date t for a a fixed interest payment at date t in different currencies

    C)a floating rate payment at date t for a fixed rate payment at date t in different currencies

    D)a floating rate payment at date t for a floating rate payment at date t in different currencies

10 points

Question 11

  1. In a floating for fixed interest rate swap, the floating rate payer usually pays

    A)the 6-month LIBOR rate.

    B)the difference between 6-month LIBOR rate and the 3-month treasury bill rate

    C)the difference between 6-month LIBOR rate and the 3-month commercial paper rate

    D)the 12-month LIBOR rate

10 points

Question 12

  1. A fixed for float swap is an agreement under which two parties exchange

    A)a fixed interest payment at date t for a a fixed interest payment at date t+1

    B)a floating interest payment at date t for a a fixed interest payment at date t+1.

    C)a floating rate payment at date t for a fixed rate payment at date t

    D)a floating rate payment at date t for a floating rate payment at date t

10 points

Question 13

  1. Before expiration the time value of an in the money stock option is always

    A)equal to zero.

    B)positive.

    C)negative.

    D)equal to the stock price minus the exercise price.

    E)none of the above

10 points

Question 14

  1. In a floating for fixed interest rate swap, the two parties

    A)exchange notionals only when they enter the swap agreement.

    B)exchange notionals only at expiration of the swap agreement.

    C)never exchange notionals

    D)exchange notionals at each payment date

10 points

Question 15

  1. The swap price is

    A)the value of the swap 1 year into the life of the contract.

    B)the fixed interest rate that make the current value of the contract fair 1 year into the life of the contract.

    C)the fixed interest rate that make the present value of the two sides of the contract equal 1 year into the life of the contract

    D)the fixed interest rate that make the present value of the two sides of the contract equal when it is signed

10 points

Question 16

  1. Assume that you have an outstanding loan with your bank under which you pay 5\% fixed rate. Assume also that you have entered into a swap agreement for a notional of 100M USD under which every 6 months you agree to pay LIBOR and receive 4% fixed. On the date you signed the contract LIBOR is 3%. The exchange of payments under the swap have the effect of modifying your liabilities so that

    A)you end up having a loan that costs 4% fixed rate.

    B)you end up having a loan that costs 6% fixed rate.

    C)you end up having a loan that costs LIBOR + 100 bps floating rate

    D)you end up having a loan that costs LIBOR - 100 bps floating rate

10 points

Question 17

Suppose the price of a share of IBM stock is $100. An April call option on IBM stock has a premium of $5 and an exercise price of $100. Ignoring commissions, the holder of the call option will earn a profit if the price of the share

A.

increases to $104.

B.

decreases to $90.

C.

increases to $107.

D.

decreases to $96.

E.

None of the above.

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