5. The following four scenarios, which is NOT an example of an interest rate exposure? A. Businesses that borrow using a bill facility. B. Financial institutions when they borrow on a floating rate and lend on a fixed rate. C. A fund manager that plans to roll over its money-market investment. D. Firms that plan to borrow in the future. E. All of these are examples of interest rate exposures.
Question
- The following four scenarios, which is NOT an example of an interest rate exposure? A. Businesses that borrow using a bill facility. B. Financial institutions when they borrow on a floating rate and lend on a fixed rate. C. A fund manager that plans to roll over its money-market investment. D. Firms that plan to borrow in the future. E. All of these are examples of interest rate exposures.
Solution
E. All of these are examples of interest rate exposures.
Explanation: A. Businesses that borrow using a bill facility are exposed to interest rate changes because the cost of their debt can increase if interest rates rise. B. Financial institutions that borrow on a floating rate and lend on a fixed rate are exposed to interest rate risk because if interest rates rise, their cost of borrowing increases but their income from lending remains the same. C. A fund manager that plans to roll over its money-market investment is exposed to interest rate risk because the return on the reinvested funds can change with changes in interest rates. D. Firms that plan to borrow in the future are exposed to interest rate risk because the cost of their future borrowing can increase if interest rates rise.
Similar Questions
Which of the following represent an interest rate exposure? Financial institutions when they borrow on a floating rate and lend on a fixed rate. A fund manager that plans to roll over its money-market investment. Firms that plan to borrow in the future. All of the above
All of the statements below are not false, except:I. Changes in interest rates represent a risk for both borrowers and investors because of diminishing investment prospects and increased cost of borrowing;II. Failure to pay accounts receivable on time by customers may have a significant negative impact on the capital base of a company;III. Companies involved in cross-border trades are subject to FX risks;IV. It is essential for banks to assess the creditworthiness of customers to mitigate the credit risk;V. Liquidity is an important consideration not only for a central bank but for other financial institutions as well. Question 1Select one:a.Only II and Vb.Only I c.Only Vd.All of the statements are truee.All of the statements are false
Which of the following is not a source of financial risk?A) Exchange rates B) Interest rates C) Market Share D) Credit Terms
When a bank raises funds in the international markets to fund new lending growth and hedges the exposure of the raised debt to interest rate risk with the help of derivatives, it is involved in: Question 1Select one:a.liability management b.asset management c.derived management d.off-balance-sheet management
Which of the following situations is a natural long market risk exposure? a. A company buys wheat to manufacture bread. b. A company plans to borrow debt in the future. c. A company plans to invest in bank deposits in the future. d. None of the other options.
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.