For the Counterparties of an Interest-Rate Swap to Determine the Amount

question 91

Multiple Choice

For the counterparties of an interest-rate swap to determine the amount and timing of thepayments they need to make to each other, they must specify

• A) the spread, type of interest rate, risk tolerance and maturity date
• B) the notional amount, type of interest rate, start date and maturity date
• C) the notional amount, spread, risk tolerance and maturity date
• D) the type of interest rate, spread, start date and maturity date

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Definitions:

Risk-free Rates

Risk-free Rates represent the return on investment of an absolutely safe asset, with no risk of financial loss, typically exemplified by treasury bills of a stable government.

Spot Exchange Rate

The existing exchange value for immediate buying or selling of a currency.

Futures Price

The agreed-upon price for the future delivery of a particular commodity, financial instrument, or currency.

Risk-free Rates

Theoretical return rates on an investment assumed to have no risk of financial loss, typically represented by the yield on government securities.