Which of the following is a use of a currency swap?

a. All of the above

b. To exchange an investment in one currency for an investment in another currency

c. To take advantage of situations where the tax rates in two countries are different

d. To exchange borrowing in one currency for borrowings in another currency

QUESTION 13

Most swaps involve cash flows based on a notional principal amount such as a loan or bond, although the instrument can be almost anything. Usually, the principal does not change hands

True

False

QUESTION 14

Which of the following describes an interest rate swap?

	a.	All of the options
	b.	A portfolio of forward rate agreements
	c.	A way of converting a liability from fixed to floating
	d.	An agreement to exchange interest at a fixed rate for interest at a floating rate

QUESTION 17

A company enters into an interest rate swap where it is paying fixed and receiving LIBOR. When interest rates increase, which of the following is true?

	a.	The value of the swap does not change provided the swap rate remains the same
	b.	The value of the swap to the company increases
	c.	The value of the swap can either increase or decrease
	d.	The value of the swap to the company decreases

Which of the following is true for the party paying fixed in an interest rate swap? Assume no other transactions with the counterparty

	a.	There is more credit risk when the yield curve is downward sloping than when it is upward sloping
	b.	There is no credit exposure provided a financial institution is used as the intermediary
	c.	The credit exposure increases when interest rates decline
	d.	There is more credit risk when the yield curve is upward sloping than when it is downward sloping