1. Why is the expected loss from a default on a swap less than the expected loss from the default on a loan with the same principal?
2. A bank finds that its assets are not matched with its liabilities. It is taking floating-rate deposits and making fixed-rate loans. How can swaps be used to offset the risk?
3. Explain how you would value a swap that is the exchange of a floating rate in one currency for a fixed rate in another currency.