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Exam F3 Topic 2 Question 33 Discussion

Actual exam question for CIMA's F3 exam
Question #: 33
Topic #: 2
HHH Company has a fixed rate loan at 10.0%, but wishes to swap to variable. It can borrow at the risk-free rate +8%. The bank is currently quoting swap rates of 3.1% (bid) and 3.5% (ask). What net rate will HHH Company pay if it enters into the swap?

Suggested Answer: D Vote an answer

This question tests understanding of interest rate swaps, a core topic in CIMA F3: Financial Strategy, particularly under financial risk management.
Step 1: Identify the company's current position
HHH Company currently has fixed-rate debt at 10.0%
It wants to swap to variable interest
Its floating-rate borrowing cost is risk-free rate + 8%
Step 2: Interpret the swap quotation
The bank quotes swap rates of:
3.1% (bid)
3.5% (ask)
In CIMA F3:
If a company wants to pay fixed and receive floating, it must pay the ask rate.
Therefore, HHH will pay fixed 3.5% and receive floating (risk-free rate) under the swap.
Step 3: Combine the loan and the swap
Component
Cash flow
Fixed loan
Pay 10.0% fixed
Swap
Pay 3.5% fixed, receive risk-free rate
Net fixed paid:
10.0%#3.5%=6.5%10.0\% - 3.5\% = 6.5\%10.0%#3.5%=6.5%
So after the swap, the company effectively pays:
Risk-free rate+6.5%\text{Risk-free rate} + 6.5\%Risk-free rate+6.5%
Step 4: Select the correct option
Risk-free rate + 6.5% #

by Richard at Apr 01, 2026, 01:19 PM

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Here are all the actual test exam dumps for IT exams. Most people prepare for the actual exams with our test dumps to pass their exams. So it's critical to choose and actual test pdf to succeed.

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