Consider a Total Return Swap (On a Credit-Risky Bond) of Total

question 5

Multiple Choice

Consider a total return swap (on a credit-risky bond) of total returns against Libor. The receiver of total return in this swap has a position that is equivalent to

• A) A forward contract to buy the asset at a fixed price at maturity of the swap.
• B) A long position in the asset and short position in a floating-rate note.
• C) A short position in the asset and long position in a floating-rate note.
• D) An asset swap that delivers the asset in exchange for a floating-rate note.

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Definitions:

Mortgage Trust

A type of investment trust that pools mortgage loans, offering investors shares in the income derived from mortgage interest payments.

Unit Trust

A form of collective investment constituted under a trust deed, similar to mutual funds in certain jurisdictions.

Global Fund

An investment fund that diversifies its portfolio by investing in securities from markets around the world.

Securities

Tradable financial instruments that represent ownership or creditor relationships, such as stocks, bonds, and options.