easy · FRM Part 1 Financial Markets and Products
If a 2-year swap has annual resets and the current 1-year and 2-year zero rates are 3% and 4%, why might the 2-year swap rate be approximately 3.98%?
- The swap rate is simply the average of the 1-year and 2-year zero rates.
- The swap rate includes a premium for the convexity adjustment between forwards and futures.
- The swap rate is a coupon-weighted average of the underlying zero rates for all payment dates.
- Market makers always set the swap rate at a fixed 2-basis-point discount to the zero curve.
Sign up free to see the explanation and track your rank →
More FRM Part 1 Financial Markets and Products practice
- If the oil market shifts from backwardation to a persistent contango, which of the followi
- If at the time of delivery S_1 = $72 and F_1 = $74, while the hedge was entered at F_0 =
- According to the standard 'Default Waterfall' of a Central Counterparty (CCP), which layer
- A 'Fallen Angel' is a term used in the bond market to describe:
- A 'long' position in which of the following provides insurance against a rise in prices?
- An American put option is deep in the money. Why might it be optimal to exercise this opti
- If at maturity the futures price were significantly higher than the spot price, what would
- How is the 'swap rate' typically determined at the inception of an interest-rate swap?