Start learning →

CA Final Interest Rate Risk — practice questions — page 3

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.

Practise Interest Rate Risk with Quill →

Interest Rate Risk questions and exercises with answers

Showing questions 61–78 of 78.

Falling Treasury futures prices reflect expectations of what?Read the answer and worked solution →A firm buys a 6-month FRA at 6% on Rs 10 million. Settlement rate is 8%. Discounted payoff?Read the answer and worked solution →An FRA buyer at 5% sees a 4% rate at settlement. What happens?Read the answer and worked solution →Caplet on Rs 2 million, 3 months, strike 4%, rate sets at 5.5%. Payoff?Read the answer and worked solution →A caplet has strike 5%. The rate sets at 4%. What is the payoff?Read the answer and worked solution →Rs 5 million 1-year cap, strike 6%, rate 7% for the year. Payout?Read the answer and worked solution →Rs 4 million 6-month floor, strike 3%, rate 2%. Payout?Read the answer and worked solution →A firm pays fixed 5% and receives floating 6.2% on Rs 10 million yearly. Net flow?Read the answer and worked solution →Notional Rs 20 million, fixed 4%, floating 3.5%, half-year period. Fixed payer's net?Read the answer and worked solution →Borrower holds an 8% cap and sold a 5% floor. Rate hits 9%. Effective rate, ignoring premium?Read the answer and worked solution →Same collar, 8% cap and 5% floor sold. Rate falls to 4%. Effective rate?Read the answer and worked solution →A Eurodollar future implies a 3-month rate of 4.25%. Its price is?Read the answer and worked solution →A Eurodollar future trades at 96.40. What rate does it imply?Read the answer and worked solution →Eurodollar price rises 95.50 to 95.60. Long gain per contract (tick 0.005, $12.50)?Read the answer and worked solution →Bond modified duration is 4.5. Yield rises 0.5 points. Approx price change?Read the answer and worked solution →A bank has Rs 500 cr rate-sensitive assets and Rs 350 cr liabilities. Rates rise 1%. Income change?Read the answer and worked solution →Firm A pays 8% fixed or MIBOR+1%; B pays 10% fixed or MIBOR+2%. Quality spread differential?Read the answer and worked solution →A borrower buys an FRA at 7%. Its loan resets at 9%. Effective cost is about?Read the answer and worked solution →

Worked practice questions

Falling Treasury futures prices reflect expectations of what?

  1. Lower interest rates
  2. Rising interest rates
  3. Higher bond prices
  4. Falling inflation
Show answer and solution

Correct answer: B. Rising interest rates

Pressure to raise rates shows up as a decline in futures prices.

Open this question →

A firm buys a 6-month FRA at 6% on Rs 10 million. Settlement rate is 8%. Discounted payoff?

  1. Rs 92,593
  2. Rs 96,154
  3. Rs 100,000
  4. Rs 50,000
Show answer and solution

Correct answer: B. Rs 96,154

10,000,000 x 0.5 x 0.02 = 100,000, discounted by 1 + 0.5 x 0.08 = 1.04, giving about 96,154.

Open this question →

An FRA buyer at 5% sees a 4% rate at settlement. What happens?

  1. Pays the seller the gap
  2. Receives the difference
  3. Pays the full notional
  4. Neither pays nor receives
Show answer and solution

Correct answer: A. Pays the seller the gap

The reference rate is below the contract rate, so the buyer pays the seller the difference.

Open this question →

How to practise

  1. Choose a Interest Rate Risk question and try to work out your answer.
  2. Open the question to check the correct answer and read its worked solution.
  3. Continue in the app for bite-sized lessons, explanations and review with Quill. You can start without creating an account.

More Strategicfinancialmanagement topics

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