Financial Swaps MCQ Questions and Answers Quiz

11. Interest rate swaps are usually possible because international financial markets in different countries are

  1. efficient
  2. perfect
  3. imperfect
  4. A and B

12. Interest rate swaps involve counterparties who want to

  1. exchange a floating rate commitment for a fixed rate loan
  2. exchange debt for stock
  3. exchange a short-term loan for a long-term loan
  4. A and B

13. Mortgage companies may use interest rate swaps mainly because

  1. they have short-term liabilities and long-term assets
  2. they have long-term debt
  3. they have mortgage loans
  4. A and B

14. Parallel and back to back loans attained prominence in the 1970s when

  1. the U.S. had trade deficits
  2. Japan had trade surpluses
  3. the British government imposed taxes on foreign currency transactions
  4. the British government devalued its currency

15. Proper risk management involves a three-stage process. Which of the following is one of those stages

  1. identify where the risks lie
  2. select the right tools to execute the strategy
  3. design an appropriate strategy for managing risks
  4. All of the above

16. The amount of outstanding interest rate swaps is ..............than that of outstanding currency swaps.

  1. smaller
  2. neither larger nor smaller
  3. larger
  4. two times larger

17. The basic motivations for swaps are shown below

  1. to provide protection against future changes in exchange rates
  2. to eliminate interest rate risks arising from normal commercial operations
  3. to reduce financing costs
  4. all of the above

18. The first currency swap between the World Bank and IBM was arranged in 1981 by

  1. Citicorp
  2. BankAmerica
  3. Solomon Brothers
  4. Merrill Lynch

19. The origins of the swap market are usually regarded as an outgrowth of the following financial instruments

  1. parallel loans
  2. back to back loans
  3. commercial paper
  4. A and B

20. The shortcomings of parallel and back to back loans are

  1. difficulty of finding counterparties
  2. a non-compliance by one of the parties
  3. difficulty of finding exact matching needs
  4. All of the above
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