A Basis Swap Is Priced by Adding a Spread to the Higher

question 21

Multiple Choice

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

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Definitions:

Rank Correlation

A statistic that measures the degree of association between two variables using the ranks of their data.

Oral Exam

An examination method where the candidate articulates responses to questions verbally, used to assess comprehension, communication skills, and knowledge.

Written Exam

A formal test conducted by asking questions on paper or digitally to assess a candidate's knowledge or proficiency in a particular subject or skill.

Psychometricians

Scientists who specialize in the theory and technique of psychological measurement, including the development and refinement of tests and measurements of personality, abilities, and attitudes.