Financial Swaps MCQ Questions and Answers for Practice

1. A back-to-back loan usually involves ...............companies in ..........different countries.

1. two, two
2. four, four
3. three, three
4. A and B

2. A currency swap bank is usually

1. an end user
2. a financial intermediary
3. a currency speculator
4. A and B

3. A currency swap broker is a swap bank who

1. uses his or her own account in completing transactions
2. is strictly an agent to take orders from her client
3. a currency speculator
4. A and B

4. An interest rate floor in currency swaps sets

1. a maximum rate on floating interest rate payments
2. a maximum rate on fixed interest rate payments
3. a minimum rate on floating interest rate payments
4. a minimum rate on fixed interest rate payments

5. Call swaptions are attractive when interests are expected to

1. fall
2. rise
3. stay the same
4. A and B

6. Comparative advantages usually exist because

1. market imperfections.
2. US banks may not have the same information as British banks have
3. differences in risk
4. all of the above

7. Currency swaps involve

1. one currency
2. two currencies
3. foreign stocks
4. B and C

8. Currency swaps overcome the shortcomings of parallel and back-to-back loans because of

1. specialized swap dealers and brokers
2. their simplicity
3. their cost effectiveness
4. A and B

9. Financial swap markets have emerged in recent years because of the following reasons

1. exchange rates fluctuate widely
2. interest rates fluctuate widely
3. forward markets may not function properly
4. all of the above

10. Financial swaps are used by the following organizations

1. multinational companies
2. commercial banks
3. world organizations
4. all of the above

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