An FI Has Purchased an Agency Security That Is an Inverse

question 3

Multiple Choice

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?

• A)If LIBOR is 4 percent, the asset will pay 5 percent to the investor.
• B)As LIBOR increases, the investor will receive a lower return on the security.
• C)The agency issuing this security may convert it into a LIBOR liability by entering into a swap agreement.
• D)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.
• E)All of these.

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Definitions:

Friendships

Mutual relationships between two or more people, characterized by trust, affection, and support.

Duration

The length of time that something continues or exists.

Antisocial Behaviors

Actions that harm or lack consideration for the well-being of others.

Negative Influences

Factors or forces that lead to adverse outcomes or detrimental behaviors in an individual.