# Essay on Interest Swaps

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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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