Simple Enough

CFA Level II
#1

The floating-rate payer in a simple interest-rate swap has a position that is equivalent to: A) a series of short FRAs. B) a series of long forward rate agreements (FRAs). C) issuing a floating-rate bond and a series of long FRAs. D) buying a floating-rate bond and a series of short FRAs.

#2

D

#3

A or C… i think i’m going A… but on exam, i’d wrestle with this for 10 minutes if possible

#4

A?

#5

Pay Floating/Receive Fixed… I would say C

#6

This question is tricky simply… haha

#7

c

#8

A when interest rates increase floating rate payer will loose in the swap as it will have to pay a net amount to the fixed rate payer. in short FRA same thing will happen, if the rate on expiration is more than the agreed rate short side will have to pay.

#9

my shaky memory says that interest swap = series of off-market FRA’s. or issue floating, buy fixed (which isn’t a choice in the question)

#10

a, all credit to kabhii.

#11

Tricky enough . . . to everyone who said C (including me) were wrong. Your answer: C was incorrect. The correct answer was A) a series of short FRAs. The floating-rate payer has a liability/gain when rates increase/decrease above the fixed contract rate; the short position in an FRA has a liability/gain when rates increase/decrease above the contract rate. C makes sense because it doesn’t work. Yea you have the floating payments, but you make out good with the long FRA when rates increase, so it doesn’t work. If only I sat and thought about it a little longer instead of thinking that I am hot **#@ and don’t need to think for such a simple question.

#12

is this A?

#13

edit: Ok someone beat me to it and I’m wrong…

#14

kabhii- celtics or lakers and in how many?