Accounting for Investments, Volume 2: Fixed Income Securities and Interest Rate Derivatives—A Practitioner's Guide

QUESTIONS

Theory questions

1. What is a cross-currency swap and how is it different from an interest rate swap?

2. Enumerate the features of an interest rate cross-currency swap.

3. What are the benefits of a cross-currency interest rate swap?

4. What are the major risks associated with a cross-currency interest rate swap?

5. What are the three types of cross-currency interest rate swaps?

6. Can a cross-currency interest rate swap be designated as a hedging instrument?

7. Enumerate the significant events in the trade life cycle of a cross-currency interest rate swap.

8. “The termination fee in any cross-currency interest rate swap includes the fx gain or loss on the position.” Elucidate.

Objective questions

1. Cross-currency swaps are an effective solution to long-term:

a) Interest rate hedging needs

b) Currency hedging needs

c) Market hedging needs

d) None of the above

2. Tenure of cross-currency swap ranges from one to __ years.

a) 5

b) 10

c) 15

d) 20

3. Cross currency swaps are suitable for ________ who has loans denominated in one currency, while its revenues are denominated in a different currency.

a) Government

b) Private

c) Corporate

d) None of the above

4. Cross-currency interest-rate swaps allow the firm to switch its _____ from one currency to another.

a) Bond

b) Equity

c) Loan

d) None of the above

5. Different types of risk involved in cross-currency swaps are ________.

a) Interest rate risk

b) Credit risk

c) Currency risk

d) All of the above

6. A cross-currency ...