interest rate

Question 1

repo rates:
1-diff between ?
2- secured or unsecured
3- buy back at higher or lower price
4- min or max credit risk
5- short term and long term name ?

Answer 1

1- sale-repo p
2-secured
3-higher p
4-min
5-overnight repo / long term repo

Question 2

basis point

Answer 2

0.01%

Question 3

overnight rate
1- def
2- highest or lowest available
3-secured or unsecured

Answer 3

fed/ banks/lowest available / credit worthy institutions / unsecured

Question 4

LIBOR (acronym)

Answer 4

London Interbank Offered Rate

Question 5

which is higher repo rates or LIBOR ?

Answer 5

LIBOR

Question 6

probability of a highly rated bank defaulting over a three-month period is ….. than over a five-year period ?

Answer 6

lower

Question 7

relation between credit risk and int rate ?

Answer 7

increase increase

Question 8

credit risk

Answer 8

the risk that there will be a default by the borrower of funds

Question 9

LIBOR :
1- fixed or variable

Answer 9

variable rate

Question 10

swap rate

Answer 10

exchange var rate (LIBOR) with fixed rate

Question 11

interest rate

Answer 11

the amount of money a borrower
promises to pay the lender

Question 12

LIBOR:
1- secured or unsecured
2- long term or short term
3- high or low credit risk
4- estimates made by banks or market

Answer 12

unsecured /short term / borrowing rate / low credit risk (AA rated banks) /banks

Question 13

Treasury Rates

Answer 13

t-bills / t-bonds/ govt / own currency / risk free

Question 14

OIS

Answer 14

a continually refreshed one-day rate.

Question 15

OIS (acronym)

Answer 15

overnight indexed swaps

Question 16

overnight rate

Answer 16

reserve req dep on A&L /
surplus funds - need additional funds

Question 17

libror/ois spread increase then

Answer 17

fin stress / less confidence

Question 18

nbr of compounding increase then

Answer 18

value at end of y increase

Question 19

formula of continuous compounding

Answer 19

A e^Rn

Question 20

continuous compounding can be thought of as being equivalent to

Answer 20

daily compounding

Question 21

formula of Rc and Rm

Question 22

bond yield

Answer 22

zero discount rate

Question 23

par yield

Answer 23

coupon rate at par

Question 24

zero rate .. bond yield

Answer 24

<

Question 25

bootstrap method

Answer 25

used to determine zero rates.

Question 26

bond yield can be solved using an iterative …

Answer 26

trial and error

Question 27

spline func

Answer 27

not linear / exponential

Question 28

R2 > R1,

Answer 28

then RF > R2

Question 29

zero curve downward sloping

Answer 29

then RF < R2

Question 30

Company Y will pay interest on the principal
between T1 and T2 at the fixed rate of RK and receive interest at RM

Answer 30

L (RM-RK)(T2-T1)

Question 31

value of FRA at t=0

Answer 31

0/RK=RF

Question 32

RK or RF change at t<>0

Answer 32

RF

Question 33

a coupon-bearing
bond lasting n years has a duration of

Answer 33

less than n years

Question 34

there is a … relationship between B and y

Answer 34

negative

Question 35

duration D vs modified duration

Answer 35

continuous compounding/ frequency m

Question 36

if the net duration is zero,

Answer 36

a financial institution eliminates its exposure to small
parallel shifts in the yield curve

Question 37

large yield change

Answer 37

portf behave diff / more curvature

Question 38

convexity is … when the payments are concentrated around one particular point in time.

Answer 38

least

Question 39

the convexity of a bond portfolio tends to be
… when the portfolio provides payments evenly over a long period of time.

Answer 39

greatest

Question 40

liquidity preference theory.

Answer 40

upward sloping / forward rates are greater
than expected future zero rates.

Question 41

a portfolio where
maturities are mismatched can lead to ..

Answer 41

liquidity problems.