Question: What is the net cost of financing for GEM after the interest rate swap?

Answers:

a) 6.60%

b) 0.25%

c) 0.10%

d) None of the above

Correct Answer:

a) 6.60%

Feedback: The net cost of financing for GEM after the interest rate swap is 6.60%.

Question #: 2

Question: What is the net savings for GEM from the interest rate swap?

Answers:

a) Libor – 0.25%

b) 0.65%

c) 0.10%

d) None of the above

Correct Answer:

b) 0.65%

Feedback: The net savings for GEM from the interest rate swap is 0.65%.

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Question: What is the net cost of financing for IBM after the interest rate swap?

Answers:

a) Libor – 0.25%

b) 0.25%

c) 6.6%

d) None of the above

Correct Answer:

a) Libor – 0.25%

Feedback: The net cost of financing for IBM after the interest rate swap is Libor – 0.25%.

Question #: 4

Question: What is the net profit or cost savings for IBM after the interest rate swap?

Answers:

a) 0.25%

b) 0.65%

c) 0.10%

d) None of the above

Correct Answer:

a) 0.25%

Feedback: The net profit or cost savings for IBM after the interest rate swap is 0.25%.

Question #: 5

Question: What is the net profit for Middle Bank after the interest rate swap?

Answers:

a) 0.25%

b) 0.65%

c) 0.10%

d) None of the above

Correct Answer:

c) 0.10%

Feedback: The net profit for Middle Bank after the interest rate swap is 0.10%.

Question #: 6

Question: What is the interest rate differential between the fixed and floating rate markets?

Answers:

a) 1.50%

b) 0.65%

c) 1.00%

d) None of the above

Correct Answer:

c) 1.00%

Feedback: The interest rate differential between the fixed and floating rate markets is 1.00%.

Question #: 7

Question: What is the total profit or cost savings to all parties after the interest rate swap?

Answers:

a) 1.50%

b) 0.65%

c) 1.00%

d) None of the above

Correct Answer:

c) 1.00%

Feedback: The total profit or cost savings to all parties after the interest rate swap is 1.00%.

Question #: 8

Question: Which of the following is/are true regarding interest rate swaps? Choose the best answer.

Answers:

a) Interest rate swaps involve an agreement to swap interest rate payments between two parties.

b) The interest payments are based on a notional amount.

c) Both of the above

d) Neither of the above

Correct Answer:

c) Both of the above

Feedback: Interest rate swaps involve an agreement to swap interest rate payments between two parties. The interest payments are based on a notional amount.

Question #: 9

Question: Which of the following is/are true regarding interest rate swaps? Choose the best answer.

Answers:

a) Interest rate swaps usually involve an exchange of fixed for floating rate interest rate payments.

b) Interest rate swaps could result in cost savings for both parties.

c) Both of the above

d) Neither of the above

Correct Answer:

c) Both of the above

Feedback: Interest rate swaps usually involve an exchange of fixed for floating rate interest rate payments. Interest rate swaps could result in cost savings for both parties.

Question #: 10

Question: Which of the following is/are true regarding interest rate swaps? Choose the best answer.

Answers:

a) The notional principal is a reference amount used to compute the interest payments.

b) The agreed principal must be paid at the end by both parties.

c) Both of the above

d) Neither of the above

Correct Answer:

a) The notional principal is a reference amount used to compute the interest payments.

Feedback: The notional principal is a reference amount used to compute the interest payments.

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