What is a mismatch risk (for an IRS)? a. The major risk faced by a swap dealer-the risk that a counter party will default on its end of the swaps. b. The risk that a country will impose exchange rate restrictions that will interfere with performance on the swaps c. Interest rates might move against the swap bank after it has only gotten half of a swap on the books, or if it has an unhedged position d. The risk that it will be difficult to find counterpart that wants to borrow the right amount of money for the right amount of time

What is a mismatch risk (for an IRS)? a. The major risk faced by a swap dealer-the risk that a counter party will default on its end of the swaps. b. The risk that a country will impose exchange rate restrictions that will interfere with performance on the swaps c. Interest rates might move against the swap bank after it has only gotten half of a swap on the books, or if it has an unhedged position d. The risk that it will be difficult to find counterpart that wants to borrow the right amount of money for the right amount of time

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 24QA

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Similar questions

Which of the following statements are true about exchange rate risk? Check all that apply: A Canadian investor with an investment in U.S Treasury bills faces exchange rate risk. Exchange rate risk arises from the uncertainty in asset returns due to changes in the exchange rate between the currency of the investor and the foreign currency. Exchange rate risk can't be perfectly hedged, even if the return earned in the foreign currency is known beforehand. Exchange rate risk can be hedged using a futures or forward contract in foreign exchange. Submit
A firm that has a sum of money denominated in a foreign currency that plans to later convert it to dollars could hedge by which of the following methods. Explain why A. a call on the foreign currency B. a long futures or forward on the foreign currency C. a short put on the foreign currency futures D. all of the above E. none of the above
What kind of interest rate swap would a commercial bank with a negative re-pricing gap (that is, rate sensitive assets is less than rate sensitive liabilities) utilize to hedge interest rate risk exposure (that is, would the commercial bank enter into an interest rate swap to make floating rate payments and receive fixed rate payments)?
Which of the following is NOT true in swap market participation by the commercial bank? a. Commercial bank engaged in swaps to reduce interest rate risk. b. Serve as an intermediary by matching up to two parties in a swap. c. Serve as an investment bank by taking the counterparty position to accommodate a party that desires to engage in a swap. d. Engaged in swap to serve as a dealer that desires to engage in a swap
What types of risks are interest rate andexchange rate swaps designed to mitigate?Why might one company prefer fixed-rate payments while another company prefers floating-ratepayments, or payments in one currency versusanother?
If a bank acts as a market maker between two counterparties in swaps transactions (earning a spread), is it subject to credit risk when it has two offsetting swaps contracts? Explain.
All of the following are internal hedging techniques for foreign exchange exposure, except: * A. creating a natural hedge. B. using leads and lags in FX transactions. C. invoicing in the home currency. D. using a swap
If a firm must pay for goods it has ordered with foreign currency, it can hedge its foreign exchange rate risk by Question 8 options: A) staying out of the exchange futures market. B) buying foreign exchange futures long. C) selling foreign exchange futures short. D) none of the above.
While visiting one of my friends at a local bank, I overheard a high ranking bank executive tell one of his colleagues that “a plain vanilla interest rate swap is a contract where two counterparties exchange cash flows based on the differences in the variation of two floating-rate indices where the payments are computed on an amortizing notional principal amount and can be used to hedge the interest rate risk for an institution with more rate sensitive assets than rate sensitive liabilities.” Comment on this statement and explain why it is right or wrong (while certain aspects of this question is similar to questions 8 and 9, it is trying to get at whether you understand interest rate swaps and what they are designed to do).
Hedgers should buy calls if they are hedging an expected outflow of foreign currency. True or False ? Explain.
Which of the following is not an argument for central bank intervention? Exchange rates are highly volatile. Exchange rate fluctuations have an adverse effect on the macroeconomy. The market knows better than economic policy makers what the appropriate level of the exchange rate is. Central bank intervention can smooth out fluctuations in exchange rates.
Has the development of the Eurodollar market made it easier ormore difficult for the Federal Reserve to control U.S. interest rates?