Financial Swaps Multiple Choice Questions and Answers for Practice

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

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

17. The basic motivations for swaps are shown below

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

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

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

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

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

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

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

21. Typically, parallel loans involve the following parties

1. A and C
2. two multinational firms
3. three multinational firms
4. two subsidiary firms

22. Which of the following is not part of the new Financial Accounting Standards Board and the Securities and Exchange Commission’s rules regarding off balance sheet transactions

1. companies must add transactions to their balance sheet when they strand to absorb a majority of the expected benefits or losses from the bulk of expected returns.
2. all off balance sheet transactions must stop effective January 1, 2004.
3. the benefits of off balance sheet transactions must be reported.
4. companies are required to tell investors about the nature and purpose of off balance sheet transactions.