Question

1.principal components analysis that the most common yield curve shift is best represented as a_______

A. An equal shift of all points. B. A shift of all points in the same direction.

C.A tilting of the yield curve. D.a bowing of the yield curve

2. The impact of a modest downward shift in interest rates for an inverse floater is likely to be:_______

A. A large increase in value. B.a small increase in value. C. Insignificant difference. D. A large decrease in value.

3.which one about vanilla IR swaps is false?___________

A. A initiation the fixed leg including principal values at par

B. The fixed payer will profit from rising interest rates.

C. A spread is applied to the floating rate to make the swap fair.

D. No upfront payments are made at initiation.

Answer 1

I can answer only 1 question (Answering 3rd)

3) Plain Vanilla Interest Rate swaps are the swaps where fixed interest rate is swapped with the floating interest rate.

Now At initiation A fixed rate is decided and floating rate (LIBOR or any other benchmark) is decided plus any spread (agreed between 2 parties). A spread is applied to the floating rate to make it a fair swap at initiation.

There might be upfront payments at initiation of the swap. Fixed payer gives fixed interest rate and floating rate payer pays floating rate on the notional principle amount.

Thus, D is the flast statement.

Also fixed payer will profit if the interest rate rises, as the fixed rate payer will still pay lower interest rate but will receive the higher interest rate (as the interest rate rises) from the counterparty.

Thus, Choice D