Derivatives MCQ - Derivatives Section 2

36 At the initiation of the contract, the value of a swap typically is:

A
zero.
B
positive.
C
negative.

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Comment

At the initiation of the contract, typically value of a swap is zero.

37 At the initiation of the contract, price of a swap typically:

A
is zero.
B
cannot be calculated.
C
is calculated through the principle of replication.

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Comment

Price of a swap is calculated using principle of replication.

38 The principle of replication states that the valuation of a swap is the present value of the:

A
underlying asset.
B
fixed and floating payments from the swap.
C
all the net cash flow payments from the swap.

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Comment

The principal of replication states that the valuation of a swap is the present value of all the net cash flow payments from the swap.

39 Which of the following statements is most likely correct?

A
For a correctly priced swap the price is the same as value.
B
The price of a swap increases if the price of the underlying increases.
C
The value of swap changes during the life of the swap.

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Comment

The price of a swap is established at the start of the swap and remains fixed. The value of a swap is typically zero at the start of the swap and changes during the life of the swap.

40 Which of the following is least likely correct?

A
The value of a swap is typically zero at initiation.
B
The value of a swap is the present value of the fixed payments during the life of the swap.
C
Swaps have multiple settlement dates.

View Explanation
Comment

Options A and C represent correct statements. The value of a swap is the present value of net cash flow payments from the swap.