MCQ for CA Final SFM - Chapter 7 Interest Rate Risk Management

Sample Multiple Choice Questions (MCQ's) for CA Final - Paper 2 - Strategic Financial Management - Chapter 7: Interest Rate Risk Management - For Practice relevant for May/Nov 23 Examinations

Q:1 M/s. Parker & Co. is contemplating to borrow an amount of`60 crores for a Period of 3 months in the coming 6 month's time from now. The current rate of interest is 9% p.a., but it may group in 6 month’s time. The company wants to hedge itself against the likely increase in interest rate.

The Company's Bankers quoted an FRA (Forward Rate Agreement) at 9.30%p.a What will be the Final settlement amount, if the actual rate of interest after 6 months happens to be (i) 9.60% p.a

 

  1. 4,09,453
  2. 4,19,453
  3. 4,39,453
  4. 4,93,453

Answer: 3

 

Q:2 M/s. Parker & Co. is contemplating to borrow an amount of`60 crores for a Period of 3 months in the coming 6 month's time from now. The current rate of interest is 9% p.a., but it may go up in 6 month’s time. The company wants to hedge itself against the likely increase in interest rate.

The Company's Bankers quoted an FRA (Forward Rate Agreement) at 9.30%p.a

What will be the Final settlement amount, if the actual rate of interest after 6 months happens to be (ii) 8.80% p.a.?

 

  1. 7,33,855
  2. 7,33,555
  3. 7,33,505
  4. 7,31,855

Answer: 1

 

Q:3 Derivative Bank entered into a plain vanilla swap through on OIS (Overnight Index Swap) on a principal of`10 crores and agreed to receive MIBOR overnight floating rate for a fixed payment on the principal. The swap was entered into on Monday, 2ndAugust, 2010 and was to commence on 3rdAugust, 2010 and run for a period of 7 days. Respective MIBOR rates for Tuesday to Monday were:

7.75%,8.15%,8.12%,7.95%,7.98%,8.15%.

If Derivative Bank received`317 net on settlement, calculate Fixed rate and interest under both legs.

Notes:

(i)Sunday is Holiday.

(ii)Work in rounded rupees and avoid decimal working.

Calculate Interest for thursday

  1. 20,156
  2. 22,256
  3. 22,050
  4. 22,200

Answer: 2

 

Q:4 Suppose a dealer quotes ‘All-in-cost’ for a generic swap at 8% against six month LIBOR flat. If the notional principal amount of swap is`5,00,000.

Generic swap is based on 30/360 days basis

(i)Calculate semi-annual fixed payment.

  1. 21000
  2. 21500
  3. 20000
  4. 20500

Answer: 3

 

Q:5 XYZ Limited borrows £ 15 Million of six months LIBOR 10.00% for a period of 24 months. The company anticipates a rise in LIBOR, hence it proposes to buy a Cap Option from its Bankers at the strike rate of 8.00%. The lump sum premium is 1.009% for the entire reset periods and the fixed rate of interest is 7.00% per annum. The actual position of LIBOR during the forthcoming reset period is as under

Reset Period           LIBOR

1                            9.00%

2                            9.50%

3                          10.00%

 

You are required to show how far interest rate risk is hedged through Cap Option.

For calculation, work out figures at each stage up to three decimal points and amount nearest to £. It should be part of working notes.

Calculate Net Amt. received from bank for reset period 1

 

  1. £34,139
  2. £34,110
  3. £34,190
  4. £34,390

Answer: 1

 

CA Final - Paper 2 - SFM - Chapter 8   

 

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