University of Illinois, ChicagoFIN 494Homework 4 solutions-ALL ANSWERS CORRECT-GRADED A

Document Content and Description Below

Problem 1 Company X, which is a chemical manufacturer, uses crude oil and buys it in the spot market on a monthly schedule. A crude oil swap is quoted by the dealer at $25. Which of the following s... tatements is correct? a. The company should sell the swap to hedge b. In a month when the spot price of oil is above $25, the company will pay the difference to the counterparty c. In a month when the spot price is below $25, the company will pay the difference to the counterparty d. The swap is traded on the exchange only Problem 2 In an interest rate swap, the floating-rate payment a. Is based on the LIBOR rate over the period immediately preceding the payment b. Is based on the LIBOR rate over the period immediately following the payment c. Is paid by the swap buyer d. Is paid along with the notional principal amount Problem 3 The structure of $U.S. / CAD exchange rates over the next four months happens to be as follows: January 0.70 February 0.75 March 0.72 April 0.68 If an exchange rate swap was quoted at $0.72 US/CAN, in which month will the seller of the swap owe money to the buyer? a. January b. February c. March d. April [Show More]

Last updated: 1 year ago

Preview 1 out of 7 pages