2 Question 5

1. Consider a swap to pay currency A floating and receive currency B floating. What type of swap would be combined with this swap to produce a swap to produce a plain vanilla swap in currency B.

   		pay currency B fixed, receive currency A fixed
   		pay currency B floating, receive currency A fixed
   		pay currency B fixed, receive currency A floating
   		pay currency B floating, receive currency A floating

Question 4

1. Which of the following statement is TRUE? I. Pricing a currency swap means to find the fixed rates in the two currencies. These fixed rates are the same as the fixed rates on plain vanilla swaps in the respective currencies II. Currency swap volume is greater than interest rate swap volume.

   		II
   		Both I and II are not true.
   		Both I and II are true.
   		I

1. Which of the following statement is TRUE? I. A plain vanilla interest rate swap is equivalent to issuing a fixed-rate bond and using the proceeds to buy a floating-rate bond or vice versa. II. At the beginning of the life of the swap, the present values of the two streams of payments of each counterparty is the same.

   		I
   		Both I and II are not true.
   		II
   		Both I and II are true.

Question 3

1. Find the fixed rate on a plain vanilla interest rate swap with payments every 180 days (assume a 360-day year) for one year. The prices of Eurodollar zero coupon bonds are 0.9756 (180 days) and 0.9434 (360 days).

   		5.5 percent
   		5.0 percent
   		6.0 percent
   		5.9 percent