Question

8)Carlton, an AAA rated corporate, enters an interest rate swap on $1,000,000, paying Libor and receiving a fixed rate of 2.56% annually. The swap is going to last for 4 years. Currently the 4-year Libor is 2.59% on dollars. One year later, Carlton decides to unwind the swap. What is the NPV of the swap if the three-year interest rate(Libor) is 3.02% now? Who pays whom?

Select one:

a.-$13,006.61; Carlton pays dealer

b.$855; Dealer pays Carlton

c.$13,006.61; Dealer pays Carlton

d.-$13,006.61; Dealer pays Carlton

e.-$855; Carlton pays dealer

7)Which one of the following statements is correct about the exchange rates?

Select one:

a.Current interest rates are i_$=1% and i_€=3.5% and they will stay constant for many years. We would expect the Euro to appreciate against dollar according to the uncovered interest rate parity.

b.The European Central Bank announces to increase interest rate by 0.1%. The market consensus was 0.2% increase before the announcement. Upon the news, we would see euro to appreciate.

c.When the central bank of Australia raises interest rate to a level that is more than all traders expected, i.e. an unexpected rise in interest rate, the Australian dollar will depreciate.

d.A country with high inflation may see its currency to appreciate according to the asset market approach.

d.Price of currency futures(or forwards) will be slightly lower than the spot exchange rate at maturity.

Answer 1