Question 1

A swap with one or more options attached is called a ______.

Accepted Answer

A swap with one or more options attached is called a swaption. The other choices are different types of swaps, but do not involve options.

Question 2

Swaps are similar in default risk to straight debt.

Accepted Answer

Swaps are far less risky than straight debt.

Question 3

A fixed-for-floating interest rate swap is called a ______.

Accepted Answer

A fixed-for-floating interest rate swap where one party pays a fixed rate and receives a floating rate is also called a coupon swap. Commodity swap involves exchanging cash flows based on the price of a commodity, currency coupon swap involves exchanging cash flows based on two different currencies, debt-for-equity swap involves exchanging debt for equity in a company, and a swaption is an option to enter into an interest rate swap.

Question 4

The default risk of a swap contract falls somewhere between the risk of a comparable futures contract and the risk of the forward contract with the longest maturity in the bundle of forward contracts that comprises the swap.

Accepted Answer

The default risk of a swap contract is generally considered to be lower than that of a comparable futures contract because swap contracts are traded over-the-counter and involve only two parties, whereas futures contracts are traded on exchanges and involve a central clearinghouse. However, swap contracts do have some default risk, which typically falls somewhere between the risk of a futures contract and the risk of the forward contract with the longest maturity in the bundle of forward contracts underlying the swap.

Question 5

A fixed-for-floating nonamortizing currency swap is called a ______.

Accepted Answer

A fixed-for-floating nonamortizing currency swap involves one party exchanging a fixed interest rate on a notional amount of a currency with another party who exchanges a floating interest rate on the same notional amount of a different currency. This type of swap is often used to manage currency risk and cash flows for international business transactions. The term "coupon swap" typically refers to a type of interest rate swap in which two parties exchange fixed and floating interest rate payments on a notional amount of debt, and is not directly related to currency swaps. The other answer choices are not relevant to the concept of a fixed-for-floating nonamortizing currency swap.

Question 6

A bank's swap portfolio is called its ______.

Accepted Answer

A bank's swap portfolio is commonly referred to as the swap book.

Question 7

Which of a) through d) is NOT TRUE of a swap if the principal amounts are in the same currency?

Accepted Answer

In a swap where the principal amounts are in the same currency, the notional principal is typically not exchanged; only the interest payments or their differences are exchanged. This is because the principal amounts are often a reference amount used to calculate the interest payments, and exchanging them would not affect the economics of the deal but could unnecessarily increase transaction costs.

Question 8

Dealers quote swap prices in a(n) ______.

Accepted Answer

The answer of Dealers quote swap prices in a(n) ______.
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Quiz 7: Currency Swaps and Swaps Markets