FM Chapter 24 Questions – Interest rate risk management
9 Comments
M
Minn·
Question 5 is not clear. I think the correct answer would be collar
J
John MoffatTutor·
The question is perfectly clear and the answer is a collar (and that is the answer that is marked as being correct).
F
Frooti·
please do explain q2 why is it option why not swap
J
John MoffatTutor·
Interest rate options fix a maximum rate of interest (for a borrower) but if interest rates are lower then the option will not be exercised and the lower rate will be paid.
With swaps they may swap a fixed rate for floating rate, or a floating rate for a fixed rate. If they end up with a flowing rate then the interest paid will not be fixed.
A
Asher·
Thanks for these questions. They were helpful.
A
Acca nerd·
Q4 is misleading. Explain the logic please. 1 is true, 1 is false. 2 are irrelevant but still they are are NOT used when investing to reduce Interest Rate Risk.
By the way, many thanks sir. You are awesome.
J
John MoffatTutor·
You are correct - thanks for pointing it out. I will have the question changed.
(and thanks for the rest of the comment :-) )
S
sankeenga1·
question 5 is not clear.I thought the correct answer would cap
With swaps they may swap a fixed rate for floating rate, or a floating rate for a fixed rate. If they end up with a flowing rate then the interest paid will not be fixed.
By the way, many thanks sir. You are awesome.
(and thanks for the rest of the comment :-) )