Question 1

A bank sells an interest rate swap to its client, with the client agreeing to pay the bank a fixed 4% and receive 3 month LIBOR + 100 basis points, payments due every quarter. After quarter 1, the 3 month LIBOR is 2% pa. Which of the following payments will happen in respect of this swap, assuming the contract notional is $100m, and the rate convention is 30/360.

Options :

A : Bank pays customer $1,000,000 and customer pays the bank $750,000

B : Bank pays customer $250,000

C : Customer pays bank $250,000

D : Bank pays customer $1,000,000

Answer: C

Question 2

What is the running yield on a 6% coupon bond selling at a clean price of $96?

Options :

A : 5.70%

B : 6.25%

C : 6.30%

D : 6.00%

Answer: B

Question 3

What is the price of a treasury bill with $100 face maturing in 90 days and yielding 5%?

Options :

A : $95.24

B : $95.00

C : $98.78

D : $101.23

Answer: C

Question 4

By market convention, which of the following currencies are not quoted in terms of 'direct quotes' versus the USD?

Options :

A : EUR

B : EUR

C : KWD

Answer: A

Question 5

A currency with a lower interest rate will trade:

Options :

A : at a forward discount

B : at a forward premium

C : at the same prices for forwards as for the spots

D : cannot be determined solely on the basis of interest rates

Answer: B