Chapter 15: Swap Markets
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1. Financial institutions with ____ interest rate–sensitive liabilities than assets are ____ affected by rising interest rates.
a.
more; adversely
b.
fewer; adversely
c.
more; favorably
d.
none of the above
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.15.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
2. Which of the following statements is incorrect?
a.
Interest rate swaps are sometimes used by financial institutions and other firms for speculative purposes.
b.
A primary reason for the popularity of interest rate swaps is the existence of market imperfections.
c.
Swaps are necessary for some financial institutions to obtain the maturities or rate sensitivities on funds that
they desire.
d.
Most financial institutions that anticipate that interest rates will move in an unfavorable direction do not hedge
their positions.
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.15.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
3. Savings institutions participate in the swap market primarily to
a.
serve as an intermediary by matching up two parties in a swap.
b.
serve as a dealer by taking the counterparty position in a swap.
c.
reduce interest rate risk.
d.
none of the above
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.15.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
4. In a swap arrangement, the most common index used for floating-rate payments is the
a.
coupon rate on existing bonds.
b.
stock dividend rate based on a U.S. stock index.
c.
London Interbank Offer Rate (LIBOR).
Chapter 15: Swap Markets
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d.
Treasury bond yield.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.15.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
5.
a.
b.
c.
d.
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
6. Swap transactions are only used to
a.
hedge against upward interest rate movements.
b.
hedge against downward interest rate movements.
c.
speculate.
d.
none of the above
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
7. If a firm negotiates a plain vanilla swap, it will provide ____ payments in exchange for ____ payments.
a.
fixed-rate; floating-rate
b.
fixed-rate euro; fixed-rate dollar
c.
stock dividend; fixed-rate
d.
stock dividend; floating-rate
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
Chapter 15: Swap Markets
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a.
rise.
b.
fall.
c.
remain constant.
d.
remain somewhat stable.
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
12. The option on a putable swap would most likely be exercised if interest rates
a.
rise.
b.
fall.
c.
remain constant.
d.
remain somewhat stable.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
13. A(n) ____ swap involves an exchange of interest payments over a swap period that does not begin until a specified
future point in time.
a.
forward
b.
extendable
c.
callable
d.
putable
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
14. Assume a financial institution has rate-sensitive liabilities and rate-sensitive assets. If this institution negotiates a rate-
capped swap, its ____ payments will be capped, and it will ____ an up-front premium in exchange for the cap.
a.
outflow; receive
b.
outflow; pay
c.
inflow; pay
Chapter 15: Swap Markets
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d.
inflow; receive
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
15. An equity swap involves the exchange of interest payments for payments linked to the degree of change in a bond
index.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
16. Assume a U.S. savings institution funds its fixed-rate mortgages by attracting short-term deposits. If it engages in an
interest rate swap, but the index on the swap does not move in perfect tandem with its cost of deposits, this reflects
a.
sovereign risk.
b.
basis risk.
c.
credit risk.
d.
none of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.15.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
17. ____ risk prevents an interest rate swap from completely eliminating a financial institution’s exposure to interest rate
risk.
a.
Credit
b.
Basis
c.
Sovereign
d.
None of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.03
Chapter 15: Swap Markets
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Page 7
applied to determine the interest payments involved.
a.
vanilla
b.
LIBOR
c.
programmed
d.
notional
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.15.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
22. Financial institutions primarily use interest rate swaps in a way that will ____ exposure to interest rate risk and ____
potential returns.
a.
increase; increase
b.
increase; reduce
c.
reduce; increase
d.
reduce; reduce
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
23. An advantage of a ____ over other interest rate swaps is that the fixed-rate payer has the flexibility to avoid
exchanging future interest payments.
a.
callable swap
b.
putable swap
c.
zero-coupon for floating swap
d.
forward swap
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
24. The advantage of a rate-capped interest rate swap (relative to a plain vanilla swap) to the party exchanging fixed
payments for floating payments is that
a.
there is a minimum limit set on interest rate payments received.
b.
there is a maximum limit set on the interest payments it will provide.
Chapter 15: Swap Markets
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Page 8
c.
it receives an up-front fee.
d.
none of the above
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
25. A plain vanilla swap enables firms to exchange ____ for ____.
a.
fixed-rate payments; floating-rate payments
b.
a high interest rate foreign currency; a low interest rate foreign currency
c.
a low interest rate foreign currency; a high interest rate foreign currency
d.
bonds; stocks that pay dividends
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
26. An arrangement that enables firms to exchange currencies at periodic intervals is called a(n)
a.
currency swap.
b.
interest rate swap.
c.
swap exchange.
d.
Eurobond swap.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.08
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
27. When a bank participates in a swap of fixed interest rate payments for floating-rate payments, or a swap of currencies,
it
a.
can match up two parties but cannot take a position in the swap.
b.
can match up two parties or can take a position in the swap.
c.
cannot match up two parties and cannot take a position in the swap.
d.
cannot match up two parties but can take a position in the swap.
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
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28. An equity swap involves the exchange of
a.
preferred stock for common stock.
b.
interest payments for an equity position in the counterparty’s firm.
c.
interest payments for payments linked to the degree of change in a stock index.
d.
interest payments for newly issued stock by financial institutions.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
29. A firm is involved in an agreement whereby it receives payments in periods when a market interest rate falls below an
interest rate level specified in the agreement. This means that the firm has
a.
purchased an interest rate cap.
b.
sold an interest rate cap.
c.
purchased an interest rate floor.
d.
sold an interest rate floor.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.15.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
30. The typical purchaser of an interest rate cap is a financial institution that is ____ affected by ____ interest rates.
a.
favorably; rising
b.
favorably; falling
c.
adversely; rising
d.
adversely; falling
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
Chapter 15: Swap Markets
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a.
assets; liabilities; increasing
b.
liabilities; assets; decreasing
c.
liabilities; assets; increasing
d.
none of the above
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
35. The Bank of Moronto has negotiated a plain vanilla swap whereby 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 is $10 million?
a.
−$600,000
b.
$600,000
c.
$450,000
d.
−$450,000
e.
none of the above
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
36. Hewitt Inc. has entered into an equity swap arrangement that allows it to swap a fixed interest rate of 8 percent in
exchange for the rate of appreciation on the Dow Jones Industrial Average each year over a three-year period. The
notional principal is $1 million. If the Dow depreciates by 1 percent over the year, Hewitt will
a.
have to make a payment of $70,000.
b.
have to make a payment of $90,000.
c.
receive a payment of $70,000.
d.
receive a payment of $90,000.
e.
none of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
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37. Lizard National Bank purchases a three-year interest rate cap for a fee of 2 percent of notional principal valued at $50
million, with an interest rate ceiling of 11 percent and LIBOR as the index representing the market interest rate. LIBOR is
9 percent, 12 percent, and 13 percent at the end of each of the next three years, respectively. The total payments received
(or paid) by Lizard, including the initial fee, are $____.
a.
500,000
b.
−500,000
c.
−1,500,000
d.
1,500,000
e.
none of the above
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.15.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Application
38. In a ____, a buyer makes periodic payments to a seller in exchange for protection against the possible default of debt
securities specified in the contract.
a.
default option contract
b.
default futures contract
c.
bankruptcy contract
d.
credit default swap
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.15.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
KEYWORDS:
Bloom’s: Knowledge
39. A common maturity of a credit default swap contract is:
a.
one month
b.
three months
c.
five years
d.
25 years
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
40. AIG’s financial problems during the credit crisis were attributed to:
a.
its weak returns on its investments in junk bonds.
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b.
its potential losses from its life insurance policies.
c.
fraud from avoiding taxes on its gains from credit default swaps.
d.
its potential losses from credit default swaps.
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
41. The primary purpose of interest rate swaps is to reduce exchange rate risk.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
42. A forward swap allows an institution to lock in the terms of the arrangement today, and the swap period begins
immediately.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
43. A putable swap gives the party making the fixed-rate payments the right to terminate the swap.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
Chapter 15: Swap Markets
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Page 15
48. The most common proxy for the benchmark rate from which a floating-rate payment is determined is the prime rate.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Analysis
49. Interest rate swaps are rarely used by companies that issue bonds.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
50. An interest rate cap offers payments in periods when a specified interest rate index exceeds a specified floor interest
rate.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
51. Interest rate floors are commonly used to hedge against lower interest rates.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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52. An interest rate collar involves the purchase of an interest rate cap and the simultaneously sale of an interest rate floor.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
53. Which of the following is not a typical provision of an interest rate swap?
a.
the notional principal value to which the interest rates are applied to determine the interest payments involved
b.
the fixed interest rate
c.
the formula and type of index used to determine the floating interest rate
d.
the underwriter of the bond
e.
All of the above are provisions of an interest rate swap.
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.15.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
54. A ____ swap involves an exchange of interest rate payments that does not begin until a specified future point in time.
a.
plain vanilla
b.
zero-coupon-for-floating
c.
forward
d.
seasoned vanilla
e.
putable
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
55. If a U.S. institution in a forward swap would like to lock in the fixed rate that it will pay when the swap period begins,
it is probably concerned that interest rates will ____; the counterparty is likely adversely affected by ____ interest rates.
a.
increase; increasing
b.
increase; declining
c.
decrease; declining
Chapter 15: Swap Markets
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d.
decrease; increasing
e.
none of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
56. A(n) ____ swap provides the party making the floating-rate payments with a right to terminate the swap.
a.
callable
b.
extendable
c.
plain vanilla
d.
putable
e.
none of the above
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
57. Interest rate ____ are interest rate derivative instruments that are normally classified separately from interest rate
swaps.
a.
caps
b.
floors
c.
collars
d.
all of the above
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
58. Which of the following is not a reason why financial institutions engage in interest rate swaps?
a.
to reduce interest rate risk
b.
to act as an intermediary
c.
to act as a dealer in swaps
d.
All of the above are reasons why financial institutions engage in swaps.
ANSWER:
d
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a.
Dealers and major participants in swaps must register with the Commodities Futures Trading Commission or
the Securities and Exchange Commission.
b.
To make the market more transparent, the majority of swaps are to be traded on electronic platforms called
swap execution facilities.
c.
Credit default swaps can no longer be created for mortgage-backed securities.
d.
Information about all swaps must be reported to a swap data repository.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.15.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
63. The same types of risks that apply to interest rate swaps may also apply to currency swaps, except that currency swaps
are not subject to basis risk.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.15.08
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension