How does an interest rate swap work? In particular, what is the notional principal?
What will be an ideal response?
An interest rate swap is an agreement between counterparties that allows an MNC to change the nature of its debt from a fixed interest rate to a floating interest rate or from a floating interest rate to a fixed interest rate. One counterparty to the basic interest rate swap pays a fixed amount of interest on a notional principal to the other counterparty, which in turn is paying the floating interest rate cash flows on the same notional amount to the first counterparty. The term notional indicates the basic principal amount on which the cash flows of the interest rate swap depend. Unlike a currency swap, no exchange of principal is necessary because the principal is an equal amount of the same currency. Usually, only a net interest payment is made depending upon whether the fixed interest rate stated in the swap is higher or lower than the floating interest rate.
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Ashley, a customer service supervisor, has high self-efficacy. She is therefore more likely to think that her goal of becoming a CEO is
A) ridiculous. B) realistic. C) too mercenary. D) too people-oriented.
What is the optimal production quantity?
The XYZ manufacturing company produces ball bearings. The annual fixed cost is $20,000 and the variable cost per ball bearing is $3. The price is related to demand according to the following equation: 1000 - 8p.
Which of the following is NOT an example of an annuity cash flow?
A) Your pay check which is the same every month. B) Your tuition payments which are the same every term. C) The identical payment you make every two years for your share of a lake cabin that you own with other family members. D) These are all annuity cash flows.
Interest costs for short-term debt are generally lower than interest costs for long-term debt because
A) the term structure of interest rates generally reflects an upward sloping yield curve. B) short-term debt is more flexible, allowing a match of short-term needs with short-term financing. C) investors demand higher returns on short-term debt due to liquidity concerns. D) both A and B.