What Is the Interest Rate Risk Exposure of the Optimal

question 111

Multiple Choice

What is the interest rate risk exposure of the optimal transaction in the previous question over the next 2 years?

• A)The risk that interest rates will rise since the FI must purchase a 2-year CD in one year.
• B)The risk that interest rates will rise since the FI must sell a 1-year CD in one year.
• C)The risk that interest rates will fall since the FI must sell a 2-year loan in one year.
• D)The risk that interest rates will fall since the FI must buy a 1-year loan in one year.
• E)There is no interest rate risk exposure. [Refer to: 9-95]

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Definitions:

Consolidated Sales

The total sales of a parent company and its subsidiaries, after eliminating intercompany sales, presented as a single sales figure for the entire company group.

Intra-entity Transfers

Transactions of goods, services, or funds between units of the same company, often requiring elimination adjustments during consolidation.

Straight-Line Method

A method of calculating depreciation and amortization, dividing the difference between an asset's cost and its salvage value by the number of years it is expected to be used.