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CA Final Interest Rate Risk — practice questions — page 2

Explore 78 free Interest Rate Risk questions in CA Final Strategicfinancialmanagement. Open each question or exercise to read its content, reference answers and available explanation.

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Interest Rate Risk questions and exercises with answers

Showing questions 31–60 of 78.

What is exchanged at FRA settlement?Read the answer and worked solution →A firm fearing a rate rise would take which FRA position?Read the answer and worked solution →An FRA buyer is paid if the reference rate is what?Read the answer and worked solution →A US$ 3x9 FRA covers a period starting when and lasting how long?Read the answer and worked solution →In an FRA quote, a payer FRA means what?Read the answer and worked solution →FRAs relate closely to which exchange-traded contracts?Read the answer and worked solution →The pricing gap between FRAs and STIR futures is called what?Read the answer and worked solution →In a cap, the buyer receives payment when the rate is where?Read the answer and worked solution →An interest rate floor pays the buyer when the rate is where?Read the answer and worked solution →Each individual option within a cap is called a what?Read the answer and worked solution →How is a cap exercised when the rate exceeds the strike?Read the answer and worked solution →The one-off price paid to buy a cap is called the what?Read the answer and worked solution →A floating-rate borrower buys a cap at 2.5%. What does this achieve?Read the answer and worked solution →In a collar, how is the cap rate set relative to the floor rate?Read the answer and worked solution →Why does a collar buyer sell a floor?Read the answer and worked solution →A collar creates what for the buyer's effective interest rate?Read the answer and worked solution →A zero cost reverse collar arises when what is true?Read the answer and worked solution →When is each caplet settled in cash?Read the answer and worked solution →The strike price of a cap reflects what for its purchaser?Read the answer and worked solution →An interest rate future has which kind of underlying asset?Read the answer and worked solution →Which is an example of an interest rate future?Read the answer and worked solution →A borrower fearing higher rates hedges with futures by doing what?Read the answer and worked solution →If market rates rise, what happens to a bond future's price?Read the answer and worked solution →How are short-term rate futures priced on exchanges?Read the answer and worked solution →The CME Eurodollar future's minimum price move is how many basis points?Read the answer and worked solution →What is the tick value of the CME Eurodollar future?Read the answer and worked solution →How does the Eurodollar future settle on the third Wednesday?Read the answer and worked solution →Which months do Treasury futures trade for on Globex?Read the answer and worked solution →Why do bond futures track market rates only loosely?Read the answer and worked solution →Exchange-traded calendar spreads on rate futures are bets on what?Read the answer and worked solution →

Worked practice questions

What is exchanged at FRA settlement?

  1. Only the rate difference
  2. Underlying bonds
  3. Principal and coupon
  4. Full notional amount
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Correct answer: A. Only the rate difference

No principal changes hands; only the gap between contracted and market rate is paid.

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A firm fearing a rate rise would take which FRA position?

  1. Sell an FRA
  2. Buy a floor
  3. Sell a floor
  4. Buy an FRA
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Correct answer: D. Buy an FRA

A company hedging against a possible increase in rates purchases FRAs.

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An FRA buyer is paid if the reference rate is what?

  1. Below the contracted rate
  2. Unchanged from the prior fix
  3. Above the contracted rate
  4. Equal to the contracted rate
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Correct answer: C. Above the contracted rate

The buyer receives the difference when the published rate exceeds the fixed contract rate.

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More Strategicfinancialmanagement topics

Mergers Acquisitions and Corporate RestructuringBusiness ValuationCapital BudgetingForeign Exchange Exposure and Risk ManagementModern Portfolio TheoryPortfolio ManagementValuation (Finance)Futures Contract