BKM 23.4 Swaps

Question 1

Interest rate swap

Answer 1

Exchange of a series of cash flows proportional to an interest rate for a series of cash flows proportional to floating interest rates

Question 2

Swap dealer profit

Answer 2

Bid-ask spread

Question 3

Credit risk in swap market

Answer 3

Since it is not a loan, loss is only the difference between the values of fixed-rate and floating-rate obligations

Question 4

Profit to Eurodollar contract buyer

Answer 4