Variable-rate assets in us dollars-fixed rate liabilities

Assignment Help Financial Management

Reference no: EM131952947

1. An FI has purchased an agency security that is an inverse floater at 9 percent minus LIBOR. Which of the following characteristics reflect this type of asset?

If LIBOR is 4 percent, the asset will pay 5 percent to the investor.

As LIBOR increases, the investor will receive a lower return on the security.

The agency issuing this security may convert it into a LIBOR liability by entering into a swap agreement.

If the FI funded the asset at LIBOR, and LIBOR reaches 10 percent, the FI will have a negative 10 percent spread on the asset.

All of the above.

2. If a US bank has variable-rate assets in US dollars and fixed-rate liabilities in Euros, the bank is exposed to

interest rate increases and an appreciation of the dollar.

interest rate declines and an appreciation of the dollar.

interest rate increases and a depreciation of the dollar.

interest rate declines and a depreciation of the dollar.

zero exposure to interest rate and exchange rate exposures.

Reference no: EM131952947

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