Use the following information to answer Question 6 to 8:

Mathews enters into a 4-year $10 million quarterly swap as the fixed-rate payer and

will receive the index return on the FTSE-100. The swap fixed rate is 5% and the

index is currently at 932. At the end of the next three quarters, the index level is

878, 1,012 and 964.

6. At the end of the first quarter, Mathews will most likely:

A. Receive $79,400

B. Pay $704,400

C. Receive $454,400

7. At the end of the second quarter, Mathews will most likely:

A. Receive $1,401,200

B. Receive $1,026,200

C. Pay $1,651,200

8. At the end of the third quarter, Mathews will most likely:

A. Pay $599,300

B. Receive $349,300

C. Pay $974,300

Use the following information to answer Questions 9 to 12:

Alpha Corp is a manufacturing company operating in Europe. In a recent board

meeting its directors decided to expand the companys operations in America by

setting up a subsidiary over there. The companys CFO estimates that the project is

going to cost $15 million. The company can get a Euro loan at 4.5% and a Dollar

loan at 7.5%.

Beta Corp is a manufacturer of heavy machinery and is based solely in the U.S. The

company wants to expand its operations in Europe and estimates that the cost of

setting up a factory in Europe is 10 million. The company can get a Dollar loan at

6.5% and a Euro loan at 5.5%.

The current $/ exchange rate is $1.5/. Both companies decide to enter into a

currency swap.

9. Which of the following statements regarding the payments made at the inception

of the swap is most accurate?

A. Alpha Corp will make a payment to Beta Corp amounting to $15 million.

B. Beta Corp will make a payment to Alpha Corp amounting to $15 million.

C. No amount will be exchanged at the inception of the swap.

10. At the first settlement date, Beta Corp will most likely:

A. Pay 450,000 to Alpha Corp.

B. Pay 550,000 to Alpha Corp.

C. Receive 550,000 from Alpha Corp.

11. At the second settlement date, Alpha Corp will most likely:

A. Pay $975,000 to Beta Corp.

B. Receive $1,125,000 from Beta Corp.

C. Receive 975,000 from Beta Corp.

12. At expiration Beta Corp will most likely:

A. Pay 450,000 to Alpha Corp.

B. Receive $15 million from Alpha Corp.

C. Receive 10 million from Alpha Corp.

Use the following information to answer Questions 16 and 17

An investor takes the pay floating side of a plain-vanilla interest rate swap and

makes payments at the rate of LIBOR-90 plus a quoted margin of 200 basis points.

The swap fixed rate equals 5% (based on a 360 day year). The notional principal of

the swap is $10 million and each settlement period is three months long.

16. If LIBOR-90 at the end of the second quarter equals 3%:

A. There is no settlement payment at the end of the third quarter.

B. The settlement payment at the end of the second quarter equals $200,000

C. The settlement payment at the end of the third quarter equals $50,000

17. If LIBOR-90 at the expiration date of the swap rises to 3% (compared to the

previous reset date):

A. The pay-floating side will make a payment.

B. The pay-fixed side will make a payment.

C. There will be no payment at expiration of the swap.