Financial Risk Manager Part 1
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A newly hired junior analyst at a US-based bank is researching reference interest rates currently or historically used in various types of financial markets. The analyst studies how different interest rates are determined, and how they are applied to various debt instruments. Which of the following statements correctly describes the specified interest rate?
A
Overnight interbank borrowing rates are the overnight swap rates that the US Federal Reserve sets for the banks to charge each other to lend cash overnight.
B
A repo rate is the interest rate charged by one party to another on unsecured overnight borrowings.
C
An interest rate on government debt issued by any country in any currency can be considered risk-free and used for discounting purposes.
D
The Secured Overnight Funding Rate (SOFR) is based on the repo rates in actual repurchase agreement transactions, while LIBOR was based on estimated borrowing rates.