If you funded your fixed-income investment portfolio with short-term deposits, how would you hedge your interest rate exposure with interest rate swaps?
A. Pay fixed and receive floating through swaps for the term of the portfolio
B. Pay floating and receive fixed through swaps for the term of the portfolio
C. You cannot: the maturity of the swaps would be longer than that of the deposits
D. You should not: there would be too much basis risk
You have borrowed at 3-month LIBOR+50. LIBOR for the loan will be re-fixed in exactly one month. The market is quoting:
1x3 USD FRA 0.42-45% 1x4 USD FRA 0.54-58% 1x5 USD FRA 0.57-62%
To hedge the next LIBOR fixing, you should:
A. Sell a 1x3 FRA at 0.42%
B. Buy a 1x3 FRA at 0.45%
C. Buy a 1x4 FRA at 0.58%
D. Sell a 1x4 FRA at 0.54%
The buyer of a cap:
A. Receives compensation if a reference interest rate falls below an agreed level
B. Pays compensation if a reference interest rate falls below an agreed level
C. Receives compensation if a reference interest rate rises above an agreed level
D. Pays compensation if a reference interest rate rises above an agreed level
The buyer of a currency put option has:
A. Substantial opportunity for gain and limited risk of loss
B. Substantial risk of loss and substantial opportunity for gain
C. Limited risk of loss and limited opportunity for gain
D. Substantial risk of loss and limited opportunity for gain
The interest earned on a USD 5,000,000.oo money market deposit for 184 days is USD 12,500.00. What was the interest rate?
A. 0.470%
B. 0.196%
C. 0.500%
D. 0.169%
The maturity of a straight 3-months deposit falls on Saturday, which happens to be the last day of the month. What is the actual deposit maturity date?
A. The following Monday
B. Saturday
C. Sunday
D. The previous Friday
What is the maximum maturity of a US Treasury bill?
A. One year
B. 270 days
C. 183 days
D. 5years
What is the major difference between a CD and a deposit?
A. The CD yields a higher rate of return
B. The CD has less credit risk
C. The CD is a transferable instrument
D. The CD has a shorter range of maturities
What happens when a coupon is paid on bond collateral during the term of a sell/buy-back?
A. Nothing
B. A margin call is triggered on the seller
C. A manufactured payment is made to the seller
D. The equivalent value plus reinvestment income is deducted from the repurchase price
A customer gives you GBP 25,000,000.00 at 0.625% same day for 7 days.
Through a broker, you place the funds with a bank for the same period at 0.6875%.
Brokerage is charged at 2 basis points per annum.
What is the net profit or loss on the deal?
A. ProfitofGBP 299.66
B. Profit of GBP 203.77
C. LossofGBP299.66
D. Loss ofGBP 203.77
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