International Finance And Treasury - Study Mode
[#346] Type of swaps in which fixed payments of interest are exchanged by two counterparties for floating payments of interest are called
Correct Answer
(B) interest rate swaps
Explanation
Solution: Type of swaps in which fixed payments of interest are exchanged by two counterparties for floating payments of interest are called interest rate swaps. An interest rate swap is a type of a derivative contract through which two counterparties agree to exchange one stream of future interest payments for another, based on a specified principal amount. In most cases, interest rate swaps include the exchange of a fixed interest rate for a floating rate.
[#347] Preferred stock is considered as hybrid security because it includes
Correct Answer
(D) both a and b
Explanation
Solution: Preferred stock is considered as hybrid security because it includes representation of ownership interest and fixed periodic payment.
[#348] Situation in which large portion of majority is borrowed from broker of investor is classified as
Correct Answer
(C) leveraged investment
Explanation
Solution: Situation in which large portion of majority is borrowed from broker of investor is classified as leveraged investment. Leveraged investing is a technique that seeks higher investment profits by using borrowed money. These profits come from the difference between the investment returns on the borrowed capital and the cost of the associated interest. Leveraged investing exposes an investor to higher risk.
[#349] A swap that is used to evade risk of exchange rate exists because of currency mismatching is classified as
Correct Answer
(C) currency swaps
Explanation
Solution: A swap that is used to evade risk of exchange rate exists because of currency mismatching is classified as currency swaps. A currency swap is an agreement in which two parties exchange the principal amount of a loan and the interest in one currency for the principal and interest in another currency. At the inception of the swap, the equivalent principal amounts are exchanged at the spot rate.
[#350] Syndication of loans is done in
Correct Answer
(A) Eurocredit market
Explanation
Solution: Syndication of loans is done in Eurocredit market. It is the market where financial banking institutions provide banking services denominated in foreign currencies. They may accept deposits and provide loans.