Question

Answer question below with Ture or False:

1. The value of a floating-rate bond is par on each interest payment date.

2.An interest rate swap is a special case of a currency swap with both currencies being the same.​

3.A swap involving two floating rates is called a basis swap

4.A strategy to replicate an equity swap involving two stock indices is to buy one index and sell short the other.​

5.Interest rate swap volume is greater than currency swap volume because virtually ever business is exposed to interest rate risk.​

Answer 1

1. False. It depends on the yield on the date and hence it should not be necessarily at par.

2. True. A currency swap involves the same attributes but with different currencies.

3. True. A basis swap is one in which a swap of two floating rates is done.

4. True. Doing this will match the cash flows with that of an equity swap.

5. True.