swap spread

CFA Level II
#1

what was the answer to this bad boy? spread over rf with counterparty c-risk included?

#2

spread over risk free rate (treasury) and counter party risk NOT included.

#3

i just said economic in schweser they say something that in swap markets only big companies enter so the credit is not a big issue versus economic conditions i might be wrong

#4

bear stearns?

#5

lxwqh Wrote: ------------------------------------------------------- > spread over risk free rate (treasury) and counter > party risk NOT included. is that the ans or spread between floating and fixed???

#6

Florinpop - that’s the answer I picked but think it’s wrong, even though Investopedia agrees with us. The correct one should be spread off treasuries.

#7

florinpop Wrote: ------------------------------------------------------- > lxwqh Wrote: > -------------------------------------------------- > ----- > > spread over risk free rate (treasury) and > counter > > party risk NOT included. > > > is that the ans or spread between floating and > fixed??? That’s the answer. The BSC example doesn’t apply since the SWAP spread is the spread for the entire banking system, aggregate of all banks, not any individual party.

#8

wasn’t it versus LIBOR since LIBOR is the universal lending rate?

#9

So what was the answer. I said the general economy becuase the banks credit risk would change with the general economy.

#10

I put against LIBOR too

#11

is there a choice says spread between the floating and fixed? i just said the org statement is right.

#12

shit…

#13

rjs157 Wrote: ------------------------------------------------------- > wasn’t it versus LIBOR since LIBOR is the > universal lending rate? The swap rate is based on libor, it’s the spread above treasuries. I can’t remember his quote, but I think it was correct.

#14

libor has credit risk. that’s why libor rate went up during bear sterns.

#15

so swap spread has counterparty credit risk? but not specific, unique counterparty credit risk? what did the question ask lol

#16

schweser = “the default premium in libor is reflected in the swap rate calculated from it” that would mean inherent counterparty risk, no? that was my thinking, so i said no and went with the counterparty one

#17

But the counterparty they are talking about is the SWAP counterparty… They are basically saying “Does the SWAP spread incorporate company A’s credit risk?”

#18

was that what they were asking? or were they asking does it reflect counterparty risk as a whole? i can’t remember

#19

i put between floating and fixed

#20

I put spread over treasuries and no change in risk.