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CIMAPRA17-BA1-1 Exam - Topic 1 Question 15 Discussion

An investor has bought a financial asset that pays a variable interest rate at the end of a three-year period At the same time, the invest forward rate agreement (FRA) on an agreed forward rate of 3% at the asset's maturity. What is the advantage of the FRA?
A) If the market interest rate at the asset's maturity is lower than 3%. the bank will pay the investor for the difference in rates
B) If the market interest rate at the asset's maturity is lower than 3%. the asset's maturity will be extended for another year
C) If the market interest rate at the asset's maturity is higher than 3%, the investor will have the option to drop the FRA upon payment
D) If the market interest rate at the asset's maturity is higher than 3%, the investor will be able to receive the higher market rate

CIMAPRA17-BA1-1 Exam - Topic 1 Question 15 Discussion

Actual exam question for CIMA's CIMAPRA17-BA1-1 exam
Question #: 15
Topic #: 1
[All CIMAPRA17-BA1-1 Questions]

An investor has bought a financial asset that pays a variable interest rate at the end of a three-year period At the same time, the invest forward rate agreement (FRA) on an agreed forward rate of 3% at the asset's maturity. What is the advantage of the FRA?

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Suggested Answer: A

by Lashaunda at May 05, 2022, 11:05 AM

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Telma
10 months ago
Not sure about B, extending maturity seems unlikely.
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Dortha
10 months ago
A is spot on, protects against lower rates!
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Alfreda
11 months ago
Wait, can you really drop the FRA? Sounds odd.
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Reena
11 months ago
I think D makes more sense, honestly.
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Ronnie
11 months ago
A is definitely the right choice!
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Iesha
11 months ago
Hmm, I'm not sure which option is the best here. I know we need to use an embedded SQL statement, but I'm not familiar with the specific syntax for that. I'll need to review my notes on embedded SQL to figure this out.
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Ardella
11 months ago
I'm a little confused on the difference between Calculation and Formula. I think I'd go with Calculation to get the age, and then either Messaging or Alert to show the error. Not sure which one would be better for this scenario.
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Lezlie
11 months ago
Hmm, I'm a bit unsure about this one. I know bar charts and straight tables can display numerical values, but I'm not sure about the other options. I'll have to think this through carefully.
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Thea
11 months ago
This seems like a straightforward logistics question. I'll focus on the key trade-offs mentioned in the options and think about which one is most critical for a total cost analysis.
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Phung
11 months ago
The Medicare Modernization Act of 2003 seems like a possibility too, especially with all the changes to Medicare around that time.
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