 QUESTION

# 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.

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\$525,000QUESTION 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 floatingBoth firms owe the same amount. Therefore net payment is zeroIncomplete informationQUESTION 3 In a plain vanilla interest rate swap, one party pays the ____ to receive the ____Swap rate; fixed rateFloating rate; fixed rateFixed rate; swap rateSwap rate; floating rateQUESTION 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 aboveQUESTION 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 millionSF 15 millionSF5 millionnone of the aboveQUESTION 9 At the initiation of the swap, what exchange rate is implied in the amounts exchanged?\$0.67\$1.00None of the aboveQUESTION 10 Calculate the next payment that Party X will make.SF603,333.33\$603,333.33\$452,500None of the aboveQUESTION 11 Calculate the next payment that Party Y will make.\$603,333.33\$452,500SF452,500None of the aboveQUESTION 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 FoodsTamale SystemsFixed15%19%FloatingLibor + 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

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