Principles of OTC Derivatives Flashcards
Which of the following is false concerning Bermudan options?
They can be exercised more than once
Which of the following bodies sets out processes and documentation for the OTC derivatives markets?
International Swaps and Derivatives Association
If you were a borrower and were concerned that interest rates will rise, which of the following contracts would you enter into?
Long FRA
Which of the following is not a benefit of a trade capture and confirmation system, such as MarkitServ, for an OTC product?
Novation on a principal to principal basis
A fund manager believes the FTSE 100 will increase in value and enters into a receiver total return swap, where equity returns are swapped for a floating rate. During this period of time the index falls in value.
Which of the following will the fund manager have to do?
Make floating rate interest payments and payments to the swap dealer for the decrease in the value of the index
Which of the following is TRUE regarding where a confirmation sits in the architecture of the ISDA documentation?
The specific terms of the confirmation override the details of the master agreement
As identified by the ISDA credit support documentation, what is the main difference between UK and US law?
Any collateral deposited in the US remains the legal property of the depositor whereas in the UK title transfers to the holder
A firm that has a master agreement benefits in which of the following ways?
It allows confirmations to be considerably shorter
When an investor takes out an interest rate swap where the notional principal decreases over time the swap is said to be:
Amortising
A bank believes that a single debtor has become too risky for them to continue to take on the risk of their debt. What could the bank do to transfer the risk of the debtor to a third party?
Issue a credit linked note
OTC products on the inter-continental exchange (ICE) can be traded:
Bilaterally or electronically
In managing a firm’s collateral a bank can provide which of the following services?
Marking to market of contracts
Monitoring the value of collateral
Managing delivery and return amounts
Paying interest on cash collateral
Which of the following is the best definition of being long a FRA?
Agreeing to pay a fixed rate of interest and receive a variable rate
Which of the following is the best description of a swaption?
The holder can exercise the option and enter into a swap
Which of these would protect against price rises but limit gains from price falls?
Buying a collar.
The best description of a zero coupon inflation swap is:
A single exchange of cash flow at maturity based on the movement of the consumer price index
Which of the following best describes the characteristics and uses of an amortising swap?
The principal is reduced over the life of the swap to net off against a matching liability
Which of the below is TRUE of forward contracts traded away from an exchange?
All components of the contracts are negotiated fully by the counterparties
Which document sets out the relationship between two institutions when one party executes a trade but another party becomes the ultimate counterparty of the trade?
Master give up agreement
Which of the following is not a criterion for a dealer member to use SwapClear?
Be an LCH Group shareholder
How might an investor gain exposure to the returns on a portfolio of shares without incurring the cost of buying the shares and paying stamp duty?
Equity swap
Which of the following trading methods offers the best possibility for market users to have straight through processing (STP) of their trades?
Electronic trading