1. Which statement is FALSE about interest rate swaps.
a. The counterparty who agrees to pay the swap rate is called the payer. The counterparty who agrees to pay the variable rate, and thus receive the swap rate, is called the receiver.
b. An interest rate swap will specify dates during the swap term when the exchange of payments is to occur.
c. At the conclusion (maturity) of the swap, nominals are also swapped.
d. At the time that each exchange of payments is to occur, the two payments are netted and only one payment is made. This is known as the net swap payment.
2. Which is NOT a reason to use swaps to manage a bank's duration gap?
a. Many institutions such as federal agencies are restricted or disallowed to trade in futures.
b. Swap costs are low.
c. Swaps can be tailored to meet specific needs.
d. Swaps are liquid and and easily be reversed.