7

What event is considered the starting point of the over-the-counter swap market?

What distinguishes a swap from a forward contract?

What role does LIBOR traditionally play in the valuation of plain vanilla interest rate swaps?

In an interest rate swap, what does the 'notional principal' represent?

If a company has borrowed $100 million at LIBOR plus 0.1% and enters into a swap to pay 5% on $100 million and receive LIBOR, what is the net effect?

When a financial institution acts as a market maker for swaps, how does it typically profit?

What is the swap rate?

What is specified in a confirmation for a swap agreement?

In what market does BBBCorp appear to have a comparative advantage?

What is a key criticism of the comparative-advantage argument for interest rate swaps?

What does the phrase "continually refreshed" LIBOR rates refer to?

What does the LIBOR/swap zero curve define?

How is the value of a newly issued floating-rate bond characterized when the LIBOR/swap zero curve is used for discounting?

From the viewpoint of the floating-rate payer, what position is equivalent to a swap?

How can a plain vanilla interest rate swap be valued?

In a fixed-for-fixed currency swap, what payments are exchanged?

What can a currency swap be used to transform?

When valuing a fixed-for-fixed currency swap as a portfolio of forward contracts, what assumption is made?

What are the two other popular currency swaps mentioned in the text, besides fixed-for-fixed?

What type of risk is entailed when a financial institution enters into offsetting swap transactions with two companies?

What differentiates the credit risk in swaps from the market risk?

What is the role of a central counterparty (CCP) in over-the-counter (OTC) derivatives markets?

What is the purpose of a credit default swap (CDS)?

What is a basis swap?

What is a constant maturity swap (CMS swap)?

What is a diff swap?

What characterizes an equity swap?

What is a swaption?

With regards to swaps, what are financial engineers limited by?

What is a key difference between currency swaps and interest rate swaps in terms of principal exchange?

How can a company use an interest rate swap?

In the context of swap valuation, how can the swap be regarded?

Why are potential losses from defaults on a currency swap greater than on an interest rate swap?

How can market risks in a contract be hedged relatively easily?

What is the function of the International Swaps and Derivatives Association (ISDA)?

In reference to using the Swap to Transform an Asset, how can Intel transform an asset earning a floating rate of interest into an asset earning a fixed rate of interest?

How does the role of LIBOR in swap valuation simplify the process for plain vanilla interest rate swaps, assuming its use as a risk-free discount rate?

Which action exemplifies how Microsoft might use a swap to transform a floating-rate loan into a fixed-rate loan?

In the context of using a swap to transform an asset, how can Intel transform an asset earning a floating rate of interest into an asset earning a fixed rate of interest?

How does a financial institution, acting as an intermediary in a swap, generate profit from offsetting swap transactions?

What is the key implication of stating that swap rates are 'continually refreshed' LIBOR rates?

What critical assumption underlies the use of the LIBOR/swap zero curve for discounting in the valuation of a newly issued floating-rate bond?

From the standpoint of a floating-rate payer, what is the equivalent position of a swap when considering bond positions?

When valuing an interest rate swap as a portfolio of forward rate agreements (FRAs), what key assumption is made?

In fixed-for-fixed currency swaps, why are principal amounts usually chosen to be approximately equivalent at the swap's initiation?

How can a fixed-for-fixed currency swap transform the nature of assets for a company like IBM?

What critical factor distinguishes the motivation for currency swaps based on comparative advantage from that of interest rate swaps?

In a currency swap between General Electric and Qantas Airways, how is the net gain to all parties typically determined?

What is the correct formula for valuing a fixed-for-fixed currency swap where dollars are received and a foreign currency is paid?

In what scenario does a financial institution face credit-risk exposure from a swap agreement?

Why are potential losses from defaults on a currency swap generally higher than those on an interest rate swap with similar principal?

How do central counterparties (CCPs) aim to reduce credit risk in over-the-counter derivatives markets?

What characterizes a constant maturity swap (CMS swap)?

What action exemplifies a diff swap (quanto)?

What is being exchanged in an equity swap?

What does a swaption provide?

In the context of day count conventions, what adjustment is necessary to compare a 6-month LIBOR rate with a fixed rate quoted as actual/365?

Why are market risks more easily hedged than credit risks in financial contracts like swaps?

If the term structure of interest rates is upward-sloping when a swap is negotiated, what does this imply about the values of the FRAs underlying the swap for Microsoft, paying fixed?

What is the key risk for financial institutions when early exchanges of cash flows in a swap have positive values but later exchanges have negative values (Figure 7.9a)?

What action can financial institutions take to hedge foreign exchange risk when involved in currency swaps motivated by comparative advantage?

What is the most realistic assumption a financial institution should make regarding a counterparty's bankruptcy when the swap's value is negative to the institution?

In an amortizing swap, how is the principal managed over the term of the swap?

In a LIBOR-in arrears swap, how is the LIBOR rate used to calculate the payment on a given date?

In an accrual swap, what condition must be met for interest to accrue on one side of the swap?

What is a key difference between currency swaps and interest rate swaps in terms of cash flow value?

What steps should financial institutions take to mitigate market risks?

If a financial institution is taking floating-rate deposits and making fixed-rate loans, how can swaps be used to offset the risk?

How would you characterize a fixed-for-floating currency swap value?

In an attempt to reduce credit risk in over-the-counter markets, what do regulators require?

What is the similarity of a Credit Default Swap(CDS) to?

If a market maker quotes a bid rate of 6.03% and an offer rate of 6.06% for a 2-year swap, what fixed rate would a company likely pay to receive LIBOR?

What is the net effect of a financial institution entering into offsetting swap transactions?

How does an amortizing swap differ from a standard interest rate swap?

How should 6-month LIBOR be adjusted when compared to a fixed rate quoted as actual/365 to make the rates comparable?

What is the key rationale behind the use of a currency swap by two companies according to the concept of comparative advantage?

What’s the primary reason financial institutions that engage in swap market-making need to hedge the risks they are taking?

In what scenario does a financial institution face credit risk in a swap agreement?

Why are potential losses generally greater from defaults on a currency swap compared to an interest rate swap with similar principals?

After a financial institution hedges its foreign exchange rate risk using forward contracts, why would the financial institutions profit (or spread) increase?

Beyond just interest rate and currency swaps, what primarily restricts financial engineers' designs for new swap types?

If the term structure of interest rates is upward sloping when a swap is negotiated and Microsoft is paying a fixed rate, what does this imply about the values of the FRAs underlying the swap?

What is a key difference between currency swaps and interest rate swaps regarding the exchange of principal?

Why are market risks in a contract like a swap more easily hedged than credit risks?

Intel has an investment of $100 million that yields LIBOR minus 20 basis points. Intel enters the type of swap where it receives fixed payments. How will the company transform the asset?

For Microsoft, the swap could have the effect of transforming borrowings at a floating rate of LIBOR plus 10 basis points into borrowings at a fixed rate with what combination of payments?

How can Intel transform an asset earning a floating rate of interest into an asset earning a fixed rate of interest?