Ch014 Interest Rate and Currency SwapsWord文档格式.docx

1、Variations of Basic Interest Rate and Currency Swaps AIG, Nomura, and IFC Link Up in Latin Swap TransactionRisks of Interest Rate and Currency SwapsIs the Swap Market Efficient?SummaryMINI CASE: The Centralia Corporations Currency Swap1 The term interest rate swapa） refers to a “single-currency inte

2、rest rate swap” shortened to “interest rate swap”b） involves “counterparties” who make a contractual agreement to exchange cash flows at periodic intervalsc） can be “fixed-for-floating rate” or “fixed-for-fixed rate”d） All of the aboveAnswer: d）2 Examples of “single-currency interest rate swap” and

3、“cross-currency interest rate swap” are:a） fixed-for-floating rate interest rate swap, where one counterparty exchanges the interest payments of a floating- rate debt obligations for fixed-rate interest payments of the other counter partyb） fixed-for-fixed rate debt service （currency swap）, where on

4、e counterparty exchanges the debt service obligations of a bond denominated in one currency for the debt service obligations of the other counter party denominated in another currencyc） a） and b）d） none of the above c）3 The primary reasons for a counterparty to use a currency swap are:a） to hedge an

5、d to speculate b） to play in the futures and forward marketsc） to obtain debt financing in the swapped currency at an interest cost reduction brought about through comparative advantages each counterparty has in its national capital market, and the benefit of hedging long-run exchange rate exposured

6、） a） and b） c） 4 The size of the swap market isa） Measured by notational principalb） Over 7 trillion dollarsc） Both a） and b）d） None of the aboveThe Swap Bank 5 Which combination of the following statements is true about a swap bank? （i）it is a generic term to describe a financial institution that f

7、acilitates swaps between counterparties （ii） it can be an international commercial bank （iii） it can be an investment bank （iv） it can be a merchant bank （v） it can be an independent operator a） （i） and （ii） b） （i）, （ii） and （iii） c） （i）, （ii）, （iii） and （iv） d） （i）, （ii）, （iii）, （iv） and （v） Answer

8、:6 A swap banka） Can act as a broker, bringing together counterparties to a swapb） Can act as a dealer, standing ready to buy and sell swapsd） Only sometimes a） but never ever b）7 In the swap market, which position carries greater risks, broker or dealer?a） Brokerb） Dealerc） They are the same swaps,

9、 therefore the same risks. b） 8 Suppose the quote for a five-year swap with semiannual payments is 8.508.60 percent. The means:a） The swap bank will pay semiannual fixed-rate dollar payments of 8.50 percent against receiving six-month dollar LIBOR.b） The swap bank will receive semiannual fixed-rate

10、dollar payments of 8.60 percent against paying six-month dollar LIBOR.9 Suppose the quote for a five-year swap with semiannual payments is 8.508.60 percent. The means:a） The swap bank will pay semiannual fixed-rate dollar payments of 8.60 percent against receiving six-month dollar LIBOR.b） The swap

11、bank will receive semiannual fixed-rate dollar payments of 8.50 percent against paying six-month dollar LIBOR.c） If the swap bank is successful in getting counterparties to both legs of the swap at these prices, he will have an annual profit of ten basis points.10 XYZ Corporation enters into a 6-yea

12、r interest rate swap with a swap bank in which it agrees to pay the swap bank a fixed-rate of 9 percent annually on a notional amount of SF10,000,000 and receive LIBOR percent. As of the third reset date （i.e. mid-way through the 6 year agreement）, calculate the price of the swap, assuming that the

13、fixed-rate at which XYZ can borrow has increased to 10%.a） SF248,685b） SF900,000c） SF2,700,000d） SF7,300,000 a）Rationale: PV of a hypothetical bond issue of SF10,000,000 with three remaining 9 percent coupon payments at the new fixed rate of 10 percent is SF9,751,314.80Year 0Year 1Year 2Year 3SF900,

14、000SF10,900,000At any reset date, the value of the adjustable rate bond side of this is par value = SF10m. （assuming no change in creditworthiness）Therefore, the price of the swap = SF10,000,000 SF9,751,315 = SF248,685.11 Suppose the quote for a five-year swap with semiannual payments is 8.508.60 pe

15、rcent in dollars and 6.606.80 percent in euro against six-month dollar LIBOR. The means:a） The swap bank will enter into a currency swap in which it would pay semiannual fixed-rate dollar payments of 8.50 percent against receiving semiannual fixed-rate euro payments of 6.80.b） The swap bank will ent

16、er into a currency swap in which it would pay semiannual fixed-rate euro payments of 6.60 percent against receiving semiannual fixed-rate dollar payments of 8.60.12 An interest-only single currency interest rate swapa） Is also known as a plain vanilla swapb） Is also known as an interest rate swapc）

17、Is about as simple as swaps can get13 Company X and company Y have mirror-image financing needs （they both want to borrow equivalent amounts for the same amount of time. Company X has a AAA credit rating, but company Ys credit standing is considerably lower.a） Company X should demand most of the QSD

18、 in any swap with Y as compensation for default risk.b） Since Y has a poor credit rating, it would not be a participant in the swap market.c） Company X should more readily agree to a swap involving Y if there is also a swap bank providing credit risk intermediation.d） a） and c）14 A swap bank has ide

19、ntified two companies with mirror-image financing needs （they both want to borrow equivalent amounts for the same amount of time. Company X has agreed to one leg of the swap but company Y is “playing hard to get”a） If the swap bank has already contracted one leg of the swap, they should be anxious t

20、o offer better terms to company Y to just get the deal done.b） The swap bank could just sell the company X side of the swap.c） Company X should lobby Y to get on board15 Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow $10,000,000 fixed for 5 years. Their externa

21、l borrowing opportunities are shown below:Fixed-Rate Borrowing Cost Floating-Rate Borrowing Cost Company X10%LIBORCompany Y12%LIBOR + 1.5%A swap bank proposes the following interest only swap: X will pay the swap bank annual payments on $10,000,000 with the coupon rate of LIBOR 0.15%; in exchange th

22、e swap bank will pay to company X interest payments on $10,000,000 at a fixed rate of 9.90%.What is the value of this swap to company X?a） Company X will lose money on the deal.b） Company X will save 25 basis points per year on $10,000,000 = $25,000 per year.c） Company X will only break even on the

23、deald） Company X will save 5 basis points per year on $10,000,000 = $5,000 per year Company X will borrow $10,000,000 at 10% external to the swap （re-read the questionX needs to raise $10,000,000 and prefers to do it at a floating rate）. Xs all-in-cost will be: 10% + （LIBOR .15%） 9.90% = LIBOR 0.05%

24、. This represents a savings of 5 basis points over their opportunity to borrow at LIBOR.16 Company X wants to borrow $10,000,000 floating for 5 years; Y will pay the swap bank annual payments on $10,000,000 with a fixed rate of rate of 9.90%.in exchange the swap bank will pay to company Y interest p

25、ayments on $10,000,000 at LIBOR 0.15%;What is the value of this swap to company Y?a） Company Y will save 15 basis points per year on $10,000,000 = $15,000 per year.b） Company Y will save 45 basis points per year on $10,000,000 = $45,000 per year.c） Company Y will save 5 basis points per year on $10,

26、000,000 = $5,000 per yeard） Company Y will only break even on the deal b） Company Y will borrow $10,000,000 at LIBOR + 1.5% external to the swap （re-read the questionY needs to raise $10,000,000 and prefers to do it at a fixed rate）. Ys all-in cost will be: 9.9% （LIBOR .15%） + LIBOR + 1.5% =11.55%.

27、This represents a savings of 45 basis points over their opportunity to borrow at 12%.17 X will pay the swap bank annual payments on $10,000,000 with the coupon rate of LIBOR 0.15%; in exchange the swap bank will pay to company X interest payments on $10,000,000 at a fixed rate of 9.90%. Y will pay the swap bank interest payments on $10,000,000 at a fixed rate of 10.30% and the