International Finance Exam

Topics: Investment, International trade, Exchange rate Pages: 17 (4430 words) Published: January 15, 2013
International finance
FIN 412
Exam #2

MC: 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 interest payments of the other counter party B. 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 currency X- C. A & B

D. none of the above

MC: In the swap market, which position potentially carries greater risks, broker or dealer?  A. Broker
X- B. Dealer
C. They are the same swaps, therefore the same risks D. Not able to tell with given information MC: Suppose the quote for a five-year swap with semiannual payments is 8.50—8.60 percent. This 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 payments of 8.50 percent against paying six-month dollar LIBOR X- 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 above

MC: 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 company Y is "playing hard to get".  X- A. The swap bank could just sell the company X side of the swap B. Company X should lobby Y to "get on board"

C. Company Y should calculate the QSD and subtract that from their best outside offer D. None of the above
MC: In a currency swap: 
A. It may be the case that two counterparties have equivalent credit ratings B. It may be the case that firms have a comparative advantage in borrowing in their domestic markets X- C. A & B
D. None of the above
MC: With amortizing currency swaps… 
A. The debt service exchanges decrease periodically through time as the hypothetical notational principal is amortized B. Incorporate an amortization feature in which periodically the amortized portions of the notational principals are re-exchanged X- C. A & B

D. None of the above
MC: A major risk faced by a swap dealer is sovereign risk. This is? A. The probability that a sovereign counterparty will default X- B. The probability that a country will impose exchange restrictions on a currency involved in an existing swap C. The probability governments will intervene to support an exchange rate. D. None of the above

MC: When a swap bank serves as a broker…
A. The swap bank stands willing to accept either side of a swap X- B. The swap bank matches counterparties but does not assume any risk of the swap C. The swap bank receives a commission for matching buyers and sellers D. None of the above

MC: With regard to a swap bank acting as a dealer in swap transactions, mismatch risk refers to? A. The risk that arises from the situation in which the floating-rates of the two counterparties are not pegged to the same index B. The risk that interest rates changing unfavorably before the sap bank can lay off to an opposing counterparty on the other side of an interest rate swap entered into with the first counterparty C. The risk the swap bank faces from fluctuating exchange rates during the time it takes for the bank to lay off a swap it undertakes with one counterparty with an opposing transaction X- D. The risk that it may be difficult or impossible to find an exact opposite match for a swap the bank has agreed take GROUP 1

MC: You will get more diversification? 
A. across industries than across countries
X- B. across countries than across industries
C. across stocks and bonds than across countries
D. none of the above
MC: The "world...
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