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Hull: Fundamentals of Futures and Options Markets, Ninth Edition
Chapter 7: Swaps
Multiple Choice Test Bank
1. A company can invest funds for five years at LIBOR minus 30 basis points. The five-year swap rate
is 3%. What fixed rate of interest can the company earn by using the swap?
A. 2.4%
B. 2.7%
C. 3.0%
D. 3.3%
2. Which of the following is true?
A. Principals are not usually exchanged in a currency swap
B. The principal amounts usually flow in the opposite direction to interest payments at the
beginning of a currency swap and in the same direction as interest payments at the end
of the swap.
C. The principal amounts usually flow in the same direction as interest payments at the
beginning of a currency swap and in the opposite direction to interest payments at the
end of the swap.
D. Principals are not usually specified in a currency swap
3. Which of the following is a way of valuing interest rate swaps where LIBOR is exchanged for a
fixed rate of interest?
A. Assume that floating payments will equal forward LIBOR rates and discount net cash
flows at the risk-free rate
B. Assume that floating payments will equal forward OIS rates and discount net cash flows
at the risk-free rate
C. Assume that floating payments will equal forward LIBOR rates and discount net cash
flows at the swap rate
D. Assume that floating payments will equal forward OIS rates and discount net cash flows
at the swap rate
