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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Brynn

1 months ago

I'm torn between answers B and E. Aren't interest rate swaps considered an external hedging technique? I need to review my notes on this one.

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Chun

1 months ago

Haha, imagine a company thinking they can outsmart the market on interest rates. That's a recipe for disaster! I'll go with answer B, just to be safe.

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Pearly

2 months 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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Lachelle

1 months ago

User 3: Definitely. It can help companies manage their risks better.

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Scarlet

1 months ago

User 2: I agree. It's a good strategy to lock in a higher rate when you can.

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Carol

1 months ago

User 1: I think answer C is correct too. It makes sense that the fixed interest rate payer would have lower risk of default when rates are falling.

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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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Deane

9 hours ago

I believe answer B is correct. An interest rate swap is indeed an external hedging technique.

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Isabelle

2 days ago

Answer C makes sense to me. When interest rates are falling, the risk of default by the fixed interest rate payer should be low.

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Mona

4 days ago

I think answer A is true. The risk of default is definitely higher for the floating interest rate payer if interest rates rise.

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Hyun

8 days ago

I agree, answer D does seem risky. It's important to carefully consider the risks involved in using interest rate swaps.

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Oliva

13 days ago

I believe answer B is correct. An interest rate swap is indeed an external hedging technique.

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Annamae

16 days ago

Answer C makes sense to me. When interest rates are falling, the risk of default by the fixed interest rate payer should be low.

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Latia

27 days ago

I think answer A is true. If interest rates rise, the floating interest rate payer could be at risk of default.

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Elly

2 months ago

I agree, answer D does seem risky. It's important to carefully consider the risks involved in using interest rate swaps.

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Margo

2 months 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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Mose

1 months ago

Yes, that's right. It involves entering into a contract with another party to manage interest rate risk.

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Tammi

1 months ago

I agree, answer B is correct. An interest rate swap is indeed an external hedging technique.

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Graciela

2 months 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

2 months ago

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

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Gabriele

2 months 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:

Brynn

Chun

Pearly

Lachelle

Scarlet

Carol

Corinne

Deane

Isabelle

Mona

Hyun

Oliva

Annamae

Latia

Elly

Margo

Mose

Tammi

Graciela

Cyril

Gabriele