Mark Roberts anticipates utilizing a floating rate line of credit in 90 days to purchase $10 million of raw materials. To get protection against any increase in the expected London Interbank Offered Rate (LIBOR) yield curve, Roberts should: A) buy a receiver swaption. B) buy a payer swaption. C) write a payer swaption. D) write a receiver swaption.
b
I hope A.
b
Ummmmm… b? Since he needs to hedge against paying LIBOR, he would want the option (buying) or receiving LIBOR (being the fixed rate payer)
C or A, I’ll go C
B
You guys are good… B indeed. This one then about CDS options: Which of the following most accurately describes the characteristics of options on credit default swaps? Options on credit indices are: A) more liquid than single issuer options and in a receiver option the option buyer has the right to sell a credit default swap. B) more liquid than single issuer options and in a receiver option the option buyer has the right to buy a credit default swap. C) less liquid than single issuer options and in a receiver option the option buyer has the right to sell a credit default swap. D) less liquid than single issuer options and in a receiver option the option buyer has the right to buy a credit default swap.
you’re hedging a future floating obligation. so you want an option to pay fixed and receive floating. right?
I say B. You are going to pay float on your LOC. To hedge it, you want to pay fixed and recieve float. So buy a payer swaption.
B
For the second one, I would guess B as well. Not sure on that one though.
B again.
A - receiver receives the payments by selling protection, and the index swaption is more liquid?
b
A for the second one
CDS receiver swaption - gives the right to receive premiums ie sell CDS. answer: A
A for second
dude i needed this one after blowing on the first one, totally misinterpreted it.
A is correct!