Question

d. The buyer of a swap pays fixed and the seller pays floating. ___

e. The 10 year swap rate is nearly always lower than the on-the-run 10 year Treasury rate. _____

f. The last payment by a seller of a swap is the fixed rate coupon plus the principal. _____

g. Once the contract is underway, a buyer in a swap contract would prefer to see rates rise more than expected. _______

True or False

Answer #1

**Answers-**

**Q d)**

**The statement is True. The buyer pays fixed and receives
floating whereas the seller recieves fixed and pays
floating.**

**Q e)**

**The statement is False. The 10 year swap rate is mostly
higher than 10 year treasury rate**

**Q f)**

**The statement is False. The seller of swap pays floating
rate coupon and the principal is exchanged in currency swap but
notin interest rate swap.**

**Q g)**

**The statement is True. The buyer of swap contract
benefits when the borrowing rate increases and the seller of swap
contract benefits when the borrowing rate
decreases. **

In an interest rate swap, BBB wishing to convert
floating rate investment to fixed-rate
investment.
Will pays fix and receive floating for the term of the swap
contract
Will receive fix and pay floating rate for the term of the swap
contract
Such a swap not possible

consider 5-year fixed-for-fixed currency swap agreement between
Shell and BP. Under the contract BP pays a fixed rate of interest
of 5% in sterling and receives a fixed rate of interest of 4% in
dollars from BP. Interest rate payments are made once a year and
principal amounts of $15 million and £10 million. which of the
following is FALSE?
A. at outset, Shell pays $15 million and receives £10
million
B. each year Shell receives $0.6 million and pays...

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...

Suppose the city of Chicago issues a floating rate bond to
finance a new middle school. The bond has a 5-year maturity, a par
value of 10 million, and an annual coupon payment equal to 12-month
LIBOR plus a spread of 1.5%. The fixed rate on a 5-year, annual
settlement, 12-month LIBOR swap is 5% per year. Briefly explain how
the city could use this swap to convert its floating rate bond into
a synthetic fixed rate bond? For example,...

High Energy enters into a currency swap with Citi Bank in which
it pays a fixed rate in U.S dollars, and Citi Bank pays a fixed
rate in euros. The notional principals are $112 million and €100
million (equivalent in value at the current exchange rate of $1.12
per euro.) The fixed rates are 4.5% in dollars and 4% in euros. The
swap specifies that the two parties exchange the notional principal
at the start and at the end of...

An interest rate swap where the annual fixed rate is 6.00% has a
remaining life of one year. Both floating and fixed rates are paid
every six months. The floating payments are indexed on the
six-month LIBOR rate. The six-month LIBOR rate observed today is 7%
with semi-annual compounding. Today’s LIBOR rates for 6-month and
12-month deposits are 7.5% and 8.0%, respectively. These two rates
are annual and continuously compounded.
a) Calculate the forward LIBOR rate for the period between...

A U.S. company (firm XYZ) enters into a currency swap in which
it pays a fixed rate of 4.5 percent on a notional principal of € 90
million, while a dealer pays a fixed rate of 5.0 percent a notional
principal of $100 million, with semiannual payments based on 30 day
months and 360 days per year for both parties; the parties exchange
notional principals at the beginning of the swap period. The final
exchange from the dealer to firm...

The Bank of Moronto has negotiated a plain vanilla swap in which
it will exchange fixed payments of 10 percent for floating payments
equal to LIBOR plus 0.5 percent at the end of each of the next
three years. In the first year, LIBOR is 8 percent; in the second
year, 9 percent; in the third year, LIBOR is 7 percent. What is the
total net payment the Bank of Moronto makes over the three-year
period if the notional principal...

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

Suppose that at the present time, one can enter 5-year swaps
that exchange LIBOR for 5%. An off-market swap would then
be defined as a swap of LIBOR for a fixed rate other than 5%. For
example, a firm with 7% coupon debt outstanding might like to
convert to synthetic floating-rate debt by entering a swap in which
it pays LIBOR and receives a fixed rate of 7%. What up-front
payment will be required to induce a counterparty to take...

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