CFA Level I · CFA Level I Exam · Forward Commitment and Contingent Claim Features and Instruments
A company issued floating-rate debt and wants to fix its interest cost. It would most likely enter a swap in which it:
The company should pay fixed and receive floating. The floating payments received on the swap offset the floating interest on its debt, leaving a net fixed cost. The opposite position would increase exposure to rising rates rather than remove it.
- Areceives fixed and pays floating
- Bpays fixed and receives floatingCorrect
- Cpays fixed and receives fixed in different currencies
Explanation
The floating receipts from the swap offset the floating interest owed on the debt, leaving the company paying only the swap fixed rate. Receiving fixed and paying floating would double its floating exposure.
Did you get it right without looking?
One question tells you little. A timed set on Forward Commitment and Contingent Claim Features and Instruments shows your real accuracy, how long you take and where you lose marks.
More Forward Commitment and Contingent Claim Features and Instruments questions
- A long futures position is opened at 80.00 per unit for a contract of 500 units. Settlement prices on the next two days are 78.00 and 79.50.…
- An investor owns a share bought at 60 and writes a European call with exercise price 65 for a premium of 4 (a covered call). At expiration t…
- Which feature of a futures contract most likely reduces counterparty credit risk relative to a forward contract?
- An investor enters a long forward contract to buy an asset at 50. At expiration the asset price is 56. The investor's payoff at expiration i…
- An investor buys a put option on a share for a premium of 3 with an exercise price of 40. At expiration the share trades at 32. The investor…
- Which statement about exchange-traded versus over-the-counter derivatives is most accurate?