Question
QUESTION 1 An FRA differs from an interest rate swap in which of the following ways? Traditionally the payment in an FRA is delayed FRAs
QUESTION 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
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
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
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
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
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
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
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
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
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 |
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