A basis swap is priced by adding a spread to the higher rate or subtracting a spread from the lower rate. This spread is found as

A basis swap is priced by adding a spread to the higher rate or subtracting a spread from the lower rate. This spread is found as

a. the difference between the floating rate on a plain vanilla swap based on one of the rates and the fixed rate on a plain vanilla swap based on the other rate.
b. the addition of the fixed rate on a plain vanilla swap based on one of the rates and the fixed rate on a plain vanilla swap based on the other rate.
c. the difference between the fixed rate on a plain vanilla swap based on one of the rates and the fixed rate on a plain vanilla swap based on the other rate.
d. the difference between the floating rate on a plain vanilla swap based on one of the rates and the floating rate on a plain vanilla swap based on the other rate.
e. none of the above correctly explain how this spread is found

Answer: C

Which of the following statements about diff swaps is true?

Which of the following statements about diff swaps is true?

a. they involve interest payments in separate currencies
b. they are based on the difference between interest rates in two countries
c. they are based on the difference between interest rates of different maturities
d. the notional amount reduces throughout the life of the swap
e. the notional amount increases throughout the life of the swap

Answer: D

Equity swaps can be used for all of the following except:

Equity swaps can be used for all of the following except:

a. to synthetically buy stock
b. to synthetically sell stock
c. to convert dividends into capital gains
d. to synthetically re-align an equity portfolio
e. none of the above

Answer: C

Find the approximate upcoming net payment on an equity swap in which party A pays the return on stock index 1 and party B pays the return on stock index 2. The notional amount is $25 million. Stock index 1 starts the period at 1500 and goes up to 1600 at the end of the period. Stock index 2 starts the period at 3500 and goes up to 3300 at the end of the period.

Find the approximate upcoming net payment on an equity swap in which party A pays the return on stock index 1 and party B pays the return on stock index 2. The notional amount is $25 million. Stock index 1 starts the period at 1500 and goes up to 1600 at the end of the period. Stock index 2 starts the period at 3500 and goes up to 3300 at the end of the period.

a. The party paying index 1 pays about $238,000
b. The party paying index 2 pays about $238,000
c. The party paying index 2 pays about $3.095 million
d. The party paying index 1 pays about $25 million
e. The party paying index 1 pays about $3.095 million

Answer: E