Questions from Financial Markets

Q: Explain why some companies that issue bonds engage in interest rate swaps

Explain why some companies that issue bonds engage in interest rate swaps in financial markets. Why do they not simply issue bonds that require the type of payments (fixed or variable) that they prefe...

Q: Explain why some companies that issue bonds engage in currency swaps.

Explain why some companies that issue bonds engage in currency swaps. Why do they not simply issue bonds in the currency that they would prefer to use for making payments?

Q: Explain the types of cash flow characteristics that would cause a firm

Explain the types of cash flow characteristics that would cause a firm to hedge interest rate risk by swapping floating-rate payments for fixed payments. Why would some firms avoid the use of interes...

Q: Describe the possible roles of securities firms in the swap market.

Describe the possible roles of securities firms in the swap market.

Q: Explain how an equity swap could allow Marathon Insurance Company to capitalize

Explain how an equity swap could allow Marathon Insurance Company to capitalize on expectations of a strong stock market performance over the next year without altering its existing portfolio mix of s...

Q: Explain how the failure of a large commercial bank could cause a

Explain how the failure of a large commercial bank could cause a worldwide swap credit crisis.

Q: Explain the exchange rate system that existed during the 1950s and 1960s

Explain the exchange rate system that existed during the 1950s and 1960s. How did the Smithsonian Agreement in 1971 revise it? How does today’s exchange rate system differ from the earlier system?

Q: Assume that the yield curves in the United States, France,

Assume that the yield curves in the United States, France, and Japan are flat. If the U.S. yield curve suddenly becomes so positively sloped, do you think the yield curves in France and Japan would be...

Q: Explain how foreign exchange derivatives could be used by U.S

Explain how foreign exchange derivatives could be used by U.S. speculators to speculate on the expected appreciation of the Japanese yen.

Q: Assume that Switzerland has a very strong economy, placing upward pressure

Assume that Switzerland has a very strong economy, placing upward pressure on both its inflation and interest rates. Explain how these conditions could place pressure on the value of the Swiss franc a...