Ch014InterestRateandCurrencySwaps教学文案.docx

1、Ch014InterestRateandCurrencySwaps教学文案Ch014-Interest-Rate-and-Currency-SwapsEun & Resnick 4eCHAPTER 14 Interest Rate and Currency SwapsTypes of SwapsSize of the Swap MarketThe Swap BankInternational Finance in Practice: The World Banks First Currency SwapSwap Market QuotationsInterest Rate SwapsBasic

2、 Interest Rate SwapCurrency SwapsBasic Currency SwapVariations of Basic Interest Rate and Currency SwapsInternational Finance in Practice: AIG, Nomura, and IFC Link Up in Latin Swap TransactionRisks of Interest Rate and Currency SwapsIs the Swap Market Efficient?SummaryMINI CASE: The Centralia Corpo

3、rations Currency SwapTypes of Swaps1 The term interest rate swapa) refers to a “single-currency interest 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

4、-for-fixed rate”d) All of the aboveAnswer: d)2 Examples of “single-currency interest rate swap” and “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 intere

5、st payments of the other counter partyb) fixed-for-fixed rate debt service (currency swap), where one 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) no

6、ne of the aboveAnswer: c)3 The primary reasons for a counterparty to use a currency swap are:a) to hedge and 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 c

7、ounterparty has in its national capital market, and the benefit of hedging long-run exchange rate exposured) a) and b)Answer: c) Size of the Swap Market4 The size of the swap market isa) Measured by notational principalb) Over 7 trillion dollarsc) Both a) and b)d) None of the aboveAnswer: c)The Swap

8、 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 facilitates 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

9、 (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: d)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 swapsc) Both a)

10、 and b)d) Only sometimes a) but never ever b)Answer: c)7 In the swap market, which position carries greater risks, broker or dealer?a) Brokerb) Dealerc) They are the same swaps, therefore the same risks.Answer: b) Swap Market Quotations8 Suppose the quote for a five-year swap with semiannual payment

11、s 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 dollar payments of 8.60 percent against paying six-month dollar LIBOR.c) a) and b)d) none of t

12、he aboveAnswer: c)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 bank will receive semiannual fixed-rate dollar payme

13、nts 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.d) none of the aboveAnswer: c)10 XYZ Corporation enters into a 6-year interest rate swap w

14、ith 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 fixed-rate at which XY

15、Z can borrow has increased to 10%.a) SF248,685b) SF900,000c) SF2,700,000d) SF7,300,000Answer: 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 3 0SF900,000SF900,000S

16、F10,900,000At 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 percen

17、t 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 enter i

18、nto 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.c) a) and b)d) none of the aboveAnswer: c)Interest Rate Swaps12 An interest-only single currency interest rate swapa) Is also known as a plain

19、 vanilla swapb) Is also known as an interest rate swapc) Is about as simple as swaps can getd) All of the aboveAnswer: d)Basic Interest Rate Swap13 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

20、credit rating, but company Ys credit standing is considerably lower.a) Company X should demand most of the QSD 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 in

21、volving Y if there is also a swap bank providing credit risk intermediation.d) a) and c)Answer: d)14 A swap bank has identified 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 co

22、mpany Y is “playing hard to get”a) If the swap bank has already contracted one leg of the swap, they should be anxious to 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 boardd) a) and b)A

23、nswer: d)15 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 external borrowing opportunities are shown below:Fixed-Rate Borrowing Cost Floating-Rate Borrowing Cost Company X10%LIBORCompany Y12%LIBOR + 1.5%A swap bank proposes

24、 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 the 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

25、 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 deald) Company X will save 5 basis points per year on $10,000,000 = $5,000 per yearAnswer: d)Rationale: Company X will borrow $10,000,000 at 10% external to t

26、he 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%. 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

27、for 5 years; company Y wants to borrow $10,000,000 fixed for 5 years. Their external 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: Y will pay the swap bank

28、 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 payments 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

29、 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 $10,000,000 = $5,000 per yeard) Company Y will only break even on the dealAnswer: b)Rationale: Company Y will borrow $10,000,000 at LIBOR + 1.5% external to the swap (re-read the

30、 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%. This represents a savings of 45 basis points over their opportunity to borrow at 12%.17 Company X wants to borrow $10,000,000 floating for 5 years; company Y

31、 wants to borrow $10,000,000 fixed for 5 years. Their external 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 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,