University:
CFA Institute
Course:
CFA Chartered Financial Analyst
Academic year:

2023
Views:

16

Pages:

2
Author:

anon

CFA Level 2 - Derivative Investments Session 17-Reading 63 Swap Markets and Contracts-LOS f 1. A payer swaption gives its holder: A) an obligation to enter a swap in the future as the fixed-rate payer. B) the right to enter a swap in the future as the fixed-rate payer. C) the right to enter a swap in the future as the floating-rate payer. {Explanation: A payer swaption give its holder the right to enter a swap in the future as the fixed-rate payer.} 2. The writer of a receiver swaption has: A) the right to enter a swap in the future as the floating-rate payer. B) an obligation to enter a swap in the future as the fixed-rate payer. C) an obligation to enter a swap in the future as the floating-rate payer. {Explanation: A receiver swaption gives its owner the right to receive fixed, the writer has an obligation to pay fixed.} 3. Mark Roberts anticipates utilizing a floating rate line of credit in 90 days to purchase $10 million of raw materials. To get protection against any increase in the expected London Interbank Offered Rate (LIBOR) yield curve, Roberts should: A) buy a receiver swaption. B) write a receiver swaption. C) buy a payer swaption. {Explanation: A payer swaption will give Roberts the right to pay a fixed rate below market if rates rise.} 4. An investor who anticipates the need to exit a pay-fixed interest rate swap prior to expiration might: A) buy a payer swaption. B) buy a receiver swaption. C) sell a payer swaption. {Explanation: A receiver swaption will, if exercised, provide a fixed payment to offset the investor’s fixed obligation, and allow him to pay floating rates if they decrease.} 5. Which of the following statements regarding swaptions is least accurate? A swaption is often used to: A) hedge the rate on an anticipated swap transaction. B) provide the right to terminate a swap. C) create a synthetic bond position. {Explanation: A swaption is like an option on a bond with payments equal to the fixed payments on the swap. The others are common uses of swaps.} 6. Which of the following is least likely to be a use of a swaption? A) Hedging the risk of a current fixed-rate commitment. B) Exiting an offsetting swap at the exercise date. C) Hedging the risk of an anticipated floating-rate obligation. {Explanation: Swaptions will not be a good hedge for a current obligation since the swaption is for a swap in the future.} 7. Wanda Brunner, CFA, is contemplating adding a swaption to her portfolio. Which of the following is least likely her goal? A) interest rate speculation. B) provide short-term liquidity. C) lock in a fixed rate. {Explanation: The three primary uses of swaptions are to lock in a fixed rate, interest rate speculation, and swap termination.}