Question

26. What type of swap contract can an **investor**
enter into to benefit from a future increase in rates?

- Enter into a swap agreement to receive a fixed rate.
- Enter into a swap agreement to receive a floating rate.
- Enter into a swap agreement to pay a floating rate.
- Enter into a forward contract starting swap to pay a floating rate.

Answer #1

Types of swap contract an investor can enter into to benefit from a future increase in rate enter into a swap agreement to receive a fixed rate.

Therefore correct answer is option A. Enter into a swap agreement to receive a fixed rate.

Swaps are derivatives markets products used for the managing the financial risk. It is an agreement between two parties to exchange cash flows on a pre-determined future date. In swap agreement generally one party pays fixed rate and another party pays a floating rate. If an investor thinks that there will be an increase in future prices then they prefer to receive a fixed rate because floating rates can increase their costs. Therefore investor will enter into a swap agreement to receive a fixed rate so that they can benefit from a future increase in rates by saving the cost.

10)You enter a long position in a € future contract with the
size of €125,000 today. The futures expire in 90 days. The interest
rates are i$=2% and i€=4%. The current spot
rate is $1.38/€. Assume 360 days a year. If the spot rate is
$1.43/€ the next day and interest rates remain the same, How much
is your profit or loss for this day?
Select one:
a. $6228.80
b. $3974.78
c. $6250
d. -$6228.80
e. -$3974.78
12)
National Bank...

If a company that had a floating-rate liability wanted to enter
into a swap to achieve a fixed-rate cost of funds, it would pay a:
A. fixed rate to the counterparty and receive a floating rate in
return from the counterparty. B. floating rate to the counterparty
and pay a floating rate to the fixed-rate lender. C. floating rate
to the counterparty and pay a fixed-rate to the fixed-rate lender.
D. floating rate to the counterparty and receive a fixed-rate...

An investor enters into a PKR500,000 quarterly plain vanilla
interest rate SWAP as fixed rate payer at a fixed rate of 5%. The
floating rate payer agrees to pay 90-day LIBOR plus 1% margin, 90
day LIBOR is currently 3%.
90-day LIBOR rates are
3.5%
90 days from now
4.0%
180 days from now
4.5%
270 days from now
5%
360
days from now
Calculate the amounts investor pays or receives 90,180, 270 and
360 days from now

You currently borrow money at a fixed
rate of 5%. However, your operating income is heavily dependent on
changes in interest rates (direct relationship). You would like to
reduce the volatility of your EPS and are considering interest rate
swaps. Should you enter into a swap agreement where you pay a fixed
rate to the bank and receive a floating rate or should you pay a
floating rate to the bank and receive fixed. Explain
how this will reduce the...

6. Two parties enter into a 2-year fixed-for-floating
interest rate swap with semiannual payment. The floating rate
payments are based on LIBOR as follows. Find swap fixed
rate.
Maturity (days)
Annualized rate
Discount factor, Z
180
0.05
0.9756
360
0.06
0.9434
540
0.065
0.9112
720
0.07
0.8772
After 180 days, the LIBOR rates and discount factors are
as follows:
Maturity (days)
Annualized rate
Z
180
0.045
0.9780
360
0.050
0.9524
540
0.060
0.9174
What is the market value of the...

Exercise A-4 (Algo) Derivatives; interest rate swap; fixed rate
debt; fair value change unrelated to hedged risk [LOA–2] LLB
Industries borrowed $330,000 from Trust Bank by issuing a two-year,
12% note, with interest payable quarterly. LLB entered into a
two-year interest rate swap agreement on January 1, 2021, and
designated the swap as a fair value hedge. Its intent was to hedge
the risk that general interest rates will decline, causing the fair
value of its debt to increase. The...

An interest rate swap can be
interpreted as a position in two cash market
instruments. What are they from the buyer’s
perspective?
____
A) A long-side of
a floating-rate bond and a short position in a fixed-rate bond
B) Purchasing a
fixed-rate bond and issuing at a floating-rate
C) Going long and
short simultaneously in a floating-rate bond
D) Buying a
long-term bond and financing with a short-term bond

An interest rate swap can be interpreted as a position in two
cash market instruments. What are they from the buyer’s
perspective? ____
A) A long-side of a floating-rate bond and a short position in a
fixed-rate bond
B) Purchasing a fixed-rate bond and issuing at a
floating-rate
C) Going long and short simultaneously in a floating-rate
bond
D) Buying a long-term bond and financing with a short-term
bond

Suppose that a commodity’s forward prices for 1 year and 2 years
are $132 and $137. The 1-year effective annual interest rate is
4.4%, and the 2-year interest rate is 5.0%. You will pay a fixed
rate of $134.43187 in a 2-year swap and receive the floating rate.
Now suppose that just after you enter into the contract, the 1-year
and 2-year interest rates each rise by 25 basis points. What is the
value of your swap position after this...

Companies AAA and BBB are offered the following rates per annum
on a $5 million 10-year loan. AAA requires a
floating-rate loan while BBB requires a fixed-rate loan. Bank of
America (BOA) is planning to arrange a fixed-for-LIBOR (= R% &
LIBOR exchange) swap with a 20-basis-point spread, which will
appear equally attractive to AAA and BBB.
Fixed Rate
Floating Rate
AAA
8%
LIBOR-0.5%
BBB
7%
LIBOR+0.5%
Total gain of the swap is:
The net gain of the swap to...

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