An insurance company makes long-term loans with variable interest rates. It funds the loans by issuing guaranteed investment contracts (GICS) that pay a fixed rate. The interest rate paid on loans is adjusted annually. The insurance company could hed ts interest rate risk by purchasing an interest rate swap where it pays a fixed rate of interest and receives a floating rate. O True O False

Why might a company become involved in an interestrate swap contract to receive fixed interest payments andpay variable?

1. All of the following statements are true regarding Credit Risk, except: a. Credit Risk is the risk that the borrower may not be able to repay its obligation. b. Credit risk is included in the valuation as a factor to determine the cost of lending or financing using debt. c. Credit Risk affects the valuation of Accounts Receivable. d. All of the statements are true.2. Honesty Company paid P985,221.67 for a 90-day treasury bill with an interest rate of 6% (assume 360 days).How much should Honesty receive at maturity date?

Which interest rate is used on very short-term loans from one bank to another?   A. Prime interest rate   B. Commercial paper rate   C. Treasury bill rate   D. Fed funds rate

A Credit Default Swap has the following attributes: I. Is basically an insurance policy for an asset II. Can be bought whether or not you own the asset III. Were one of the major reasons the financial markets collapsed in 2007 IV. Are now regulated A. I & II B. II & II C. II & IV O D. I,II,II & IV

match the correct term for each of the following descriptions. Descriptions Terms Examples of these instruments include trade credit, accruals, short-term bank loans, and commercial paper. Accruals    A document that provides evidence of the existence of a debt, and specifies the terms of the loan transaction. Blanket lien    The cost of accounts payable paid before the expiration of the discount period. Commercial paper    This financial instrument uses a borrowing firm’s entire inventory of low-priced, fast selling, and fungible products to secure a short-term loan, and allows the borrower to sell items from inventory without the lender’s permission. Commitment fee    A fee charged by a financial institution providing a guaranteed, or revolving, line of credit, on the unused balance of a revolving line of credit. Discount interest loan    A form of unsecured short-term financing used by large, extremely creditworthy business organizations. Factoring    A financial…

The borrowing base used to guarantee collateral on an operating line of credit is highly dependent on the valuation rates allowed on short-term assets by the lender. A. True B. False

The time value of money is used in calculating bond prices because: Group of answer choices A - The company might choose to repay the bonds prior to their maturity date B - Bond investors receive future payments and purchase bonds with current dollars C - The amount to be repaid at maturity will change as market rates change D - Cash interest payments to bondholders will change as market rates change

A Collateralized Mortgage Obligation (CMO) allows you to create some AAA rated tranches from a pool of subprime mortgages by ordering the tranches by payback precedence.   Question 36 options:   True   False

Interest Rate Swap: A company that expects interest rates to rise and wishes to exchange its floating interest rate for a fixed rate would: Select one OA. Enter into a payer swap B. Enter into a receiver swap C. Sell interest rate futures OD. Buy interest rate futures