Page 161 - DMGT549_INTERNATIONAL_FINANCIAL_MANAGEMENT

International Financial Management

Notes Roller Coaster Swaps: A variation on the amortizing swap is the roller-coaster swap where the
principal involved increases and decreases over the life of the swap.

9.8 Review Questions

1. What do you understand by the terms: currency swaps and interest rate swaps? List the
main factors behind the phenomenal growth in the swap market in recent years.
2. “Swaps are risk-management instruments; yet they give rise to certain risk themselves”.
Elucidate with examples.
3. Why do firms use currency swaps? Explain with examples.
4. What do the following terms mean:
(a) Cross currency swap, (b) Plain vanilla swap, and (c) Zero coupon swap.

5. Are interest rate swaps popular? Elucidate.
6. Briefly discuss the advantages of swaps as an asset-liability management technique.
7. Why have currency swaps generally replaced parallel and back-to-back loan?
8. What is the difference between a plain vanilla currency swap and a plain vanilla interest
rate swap?
9. What is the difference between parallel loan and a back-to-back loan?
10. Why do companies go in for interest rate swaps? Give the advantages of Interest rate
swaps.

Answers: Self Assessment

1. True 2. False
3. True 4. Offsetting needs
5. True 6. True

7. True 8. True
9. True 10. True
11. True 12. False

13. Currency swaps 14. Standard currency swap
15. Cost reductions

9.9 Further Readings

Books Apte, P.G. International Financial Management, Tata McGraw Hill Publishing
Company Limited, New Delhi.

Bhalla, V.K. International Financial Management, Anmol Publishers.
Eun/Resnick, International Financial Management, Tata McGraw Hill Publishing
Company Limited, New Delhi.

Shapiro Allan C, Multinational Financial Management, Prentice Hall, New Delhi.

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