A Plain Vanilla Interest-Rate Swap Is an Agreement to Exchange

question 24

Multiple Choice

A plain vanilla interest-rate swap is an agreement to exchange a series of periodic payments,one computed at a fixed rate and the other at

• A)A floating rate indexed to a money-market rate in the same currency (e.g. ,Libor).
• B)A floating rate linked to the return on any financial index,e.g. ,an equity index.
• C)A floating rate indexed to a money-market rate in the same or a different currency.
• D)A floating rate indexed to a commodity (e.g. ,gold)price.

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Definitions:

J. M. Keynes

An influential British economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments.

Lockbox System

A service offered by banks to companies for receiving payments from customers; the bank collects and processes these payments directly to speed up the deposit process.

Firm Implementation

The process of putting a business strategy or plan into action to achieve its goals and objectives.

Float

The time difference between when a check is written and when the funds are actually withdrawn from the account, or the number of shares available for trading of a particular stock.