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In part a of this question it says interest is due after 6 months of 300M pesos. It gives the impression that we have to pay only 6 months of interest. I understand interest payments are made annually usually but the questions says it so specifically that interest payment is in 6 months time making it look as if we are only concerned with 6 months interest payment.
I remember i took 300M x 10% x 6/12 = 15m for forward market hedge instead of whole year interest of 30m 🙁
In part b In solution the examiner has included Gap exposure and basis risk. What is gap exposure basis risk and interest bearing assets? Why the examiner has included this in the soultion when he himself is saying that its not relevant for the question as there is no information regarding it?
You are correct in that the question is badly worded (because interest is more commonly paid 6 monthly in practice).
Because the wording of the question did not make this clear, it will have been noticed in the marking and I am confident that you would not have lost marks for treating it as you did.
With regard to gap exposure etc. – I agree with you and I think it wrong for the examiner to have allocated one mark for this. Had he asked about different risks that could have been faced, then it would be OK. But the question asked about what risks were faced.
Thank you very much for your answers sir!!
Can u explain to me about gap exposure and basis risk?
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