Essay on Interest Swaps

1221 Words Dec 8th, 2012 4 Pages
International Financial Management
Review on Swaps, Solution

1. The term interest rate swap
A. refers to a "single-currency interest rate swap" shortened to "interest rate swap"
B. involves "counterparties" who make a contractual agreement to exchange cash flows at periodic intervals
C. can be "fixed-for-floating rate" or "fixed-for-fixed rate"
D. All of the above
2. Suppose the quote for a five-year swap with semiannual payments is 8.50—8.60 percent. The means:
A. The swap bank will pay semiannual fixed-rate dollar payments of 8.50 percent against receiving six-month dollar LIBOR.
B. The swap bank will receive semiannual fixed-rate dollar payments of 8.60 percent against paying six-month dollar LIBOR.
C. a) and b)
D. none
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Company A and company B both want to borrow $1,000,000 for three years. A wants to borrow floating and B wants to borrow fixed. A and B agree to split the QSD equally.

A. B pays a one-time payment of $402,114.80 to A at the end of the first year, thereafter no payments.
B. B pays $100,000 to A every year for the next three years. Total interest payment $300,000 over three years.
C. The interest portion of the

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