**Both firms owe the same amount therefore net payment is zero**

QUESTION 1 Interest rate swap: Consider a $30 million notional principal interest rate swap. The fixed interest rate is 7%, paid quarterly on the basis of 90 days in a quarter and 360 days in a year. The first floating interest rate payment is set at 7.2%. Calculate the first net payment.

$15,000

$20,000

$525,000

QUESTION 2 [REPEAT] Interest rate swap: Consider a $30 million notional principal interest rate swap. The fixed interest rate is 7%, paid quarterly on the basis of 90 days in a quarter and 360 days in a year. The first floating interest rate payment is set at 7.2%. Identify which party (fixed or floating) pays the net amount.

Party paying floating

Both firms owe the same amount. Therefore net payment is zero

Incomplete information

QUESTION 3 In a plain vanilla interest rate swap, one party pays the ____ to receive the ____

Swap rate; fixed rate

Floating rate; fixed rate

Fixed rate; swap rate

Swap rate; floating rate

QUESTION 4 Interest rate swap: Suppose in an interest rate swap, the floating rate is set equal to LIBOR plus 75 basis points. The fixed rate is 5.5%. What is the floating interest rate if the notional principal is $25 million and LIBOR is 4.5%?

5.25%

4.5%

5.5%

None of the above

QUESTION 8 For this and the next 3 questions. Currency swap: Consider a currency swap between Party X in the USA and Party Y in Switzerland. The swap is for $10 million and SF15 million. Party Y pays dollars of interest to X at a fixed interest rate of 9 percent. Party X in USA pays Swiss francs (SF) at a fixed rate of 8 percent. The payments are made semi-annually based on the exact day count and 360 days in a year. The current period has 181 days. At the initiation of the swap, how much will Party X owe (deliver to) Party Y?

$10 million

SF 15 million

SF5 million

none of the above

QUESTION 9 At the initiation of the swap, what exchange rate is implied in the amounts exchanged?

$0.67

$1.00

None of the above

QUESTION 10 Calculate the next payment that Party X will make.

SF603,333.33

$603,333.33

$452,500

None of the above

QUESTION 11 Calculate the next payment that Party Y will make.

$603,333.33

$452,500

SF452,500

None of the above

QUESTION 12 For this and the next 2 questions. Interest rate swap: Design an interest rate swap for the two firms described below. Achimota Foods wishes to take out a floating interest loan while Tamale Systems would like to issue a fixed rate loan.

Achimota Foods

Tamale Systems

Fixed

15%

19%

Floating

Libor + 3%

Libor + 5%

Suppose the gains are to be divided in the following manner: 80% for Achimota and 20% for Tamale.

QUESTION 13 Based on the ratios for splitting up the quality swap, how much is the net savings due to Achimota?

1.6%

0.4%

1.0%

None of the above

**Category:**Business, General Business

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