Enter into swap to achieve fixed-rate cost of funds

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Reference no: EM132073382

1. If a company that had a floating-rate liability wanted to enter into a swap to achieve a fixed-rate cost of funds, it would pay a:

A. fixed rate to the counterparty and receive a floating rate in return from the counterparty.

B. floating rate to the counterparty and pay a floating rate to the fixed-rate lender.

C. floating rate to the counterparty and pay a fixed-rate to the fixed-rate lender.

D. floating rate to the counterparty and receive a fixed-rate in return from the counterparty.

2. Which of the following about interest rate swaps is NOT correct?

A. An interest rate swap allows a company to change the net characteristics of its interest rate cash flows.

B. An interest rate swap is based on interest rates worked out on a notional principal.

C. If a company has a fixed-rate loan it can enter into an interest rate swap whereby the bank lender will pay it a variable rate to net out the fixed rate from the company.

D. A cross-currency swap involves the exchange and interest payments based on a fixed exchange rate.

3. If a company with a fixed-rate debt of 11% enters into a swap and pays floating-rate debt of BBSW+1.20% and receives fixed-rate payments of 9%, its net cost of debt becomes:

A. 11% B. BBSW+0.20% C. BBSW+2.20% D. 12%

Reference no: EM132073382

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