Chapter 5 - Swap Markets Flashcards
In swaps, when one party receives a floating rate it is said they are ________________
Long
An agreement between two parties to exchange a series of future cash flows.
A swap
In swaps, when one party receives a fixed price they are said to be _____________
Short
Swaps can be referred to as _________________
a series of payments
A swap is basically a series of ________________
forward contracts
How much value does a swap have at the beginning of a contract?
Zero. Neither party pays any amount to the other party.
Date on which the parties make payments
settlement date
Time period between settlement dates
settlement period
Date of final payment
termination date
Swaps are ____________________ and are subject to default risk.
over-the-counter instruments. Default is possible whenever a payment is due.
The underlying in asset in a swap can be
currency, interest rates, stock, or commodity.
A swap in which both sets of interest payments are made in the same currency is an
interest rate swap
An interest rate swap in which one party pays a fixed rate and the other pays a floating rate, with both sets of payments in the same currency.
Plain vanilla swap. This is probably the most common derivative transaction in the global financial system.
Two characteristics that distinguish equity rate swaps from interest rate and currency swaps?
1) The party making the fixed-rate payment could also have to make a variable payment based on the equity return.
2) The payment is not known until the end of the settlement period at which time the return on the stock is known.
An equity swap is like ___________________, but not __________________.
An equity swap is like issuing bonds and buying stock, but not buying and holding stock.
