CIMA Exam CIMAPRO19-P03-1 Topic 6 Question 38 Discussion

Actual exam question for CIMA's CIMAPRO19-P03-1 exam

Question #: 38
Topic #: 6

Which of the following are true of interest rate swaps?

ARisk of default is high from the floating interest rate payer if interest rates rise.

BAn interest rate swap is an external hedging technique.

CWhen interest rates are falling, the risk of default by the fixed interest rate payer is low.

DSome companies use interest rate swaps to deliberately increase their risks because they believe that they are better at predicting future interest rates than the market.

EAn interest rate swap is an internal hedging technique.

Show Suggested Answer

Suggested Answer: A, B, D

by Talia at Sep 23, 2022, 12:35 AM

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Pearly

19 hours ago

I believe answer C is correct. When interest rates are falling, the fixed interest rate payer is at a lower risk of default, as they are locked into a higher rate.

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Hmm, I'm not sure about answer D. While some companies may use swaps to speculate on interest rates, I wouldn't say they deliberately increase their risks. That seems a bit risky, even for the most confident traders.

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Margo

10 days ago

I think answer B is correct. An interest rate swap is an external hedging technique, as it involves a contract with another party to manage interest rate risk.

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Graciela

16 days ago

I believe option C is true. When rates fall, the risk of default by the fixed rate payer is indeed low.

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Cyril

18 days ago

I disagree with option D. Companies use interest rate swaps to manage risks, not increase them.

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Gabriele

19 days ago

I think option A is true because the floating interest rate payer is at risk if rates rise.

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CIMA Exam CIMAPRO19-P03-1 Topic 6 Question 38 Discussion

Contribute your Thoughts:

Pearly

Corinne

Margo

Graciela

Cyril

Gabriele