If You Funded Your Fixed-Income Investment Portfolio with Short-Term Deposits

question 500

Multiple Choice

If you funded your fixed-income investment portfolio with short-term deposits, how would you hedge your interest rate exposure with interest rate swaps?

• A) Pay fixed and receive floating through swaps for the term of the portfolio
• B) Pay floating and receive fixed through swaps for the term of the portfolio
• C) You cannot: the maturity of the swaps would be longer than that of the deposits
• D) You should not: there would be too much basis risk

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Definitions:

Subscription Agreements

Legal agreements for the purchase of shares in a company, typically used in private placements, detailing the terms and conditions of the investment.

Incorporation Process

The legal procedure by which a business entity is formed as a corporation, involving registration with the state, drafting articles of incorporation, and meeting other regulatory requirements.

Capital

Financial assets or the financial value of assets, such as cash or goods, used by a company to fund its operations and facilitate its growth.

Double Taxation

The imposition of tax by two or more jurisdictions on the same declared income, asset, or financial transaction.