Explanation:
In generating the TSECCF, we calculate the TSECF for the first year and then cumulate the amounts until the 10th year following TSECCF as follows,
This is as calculated in the following table.
For instance, the expected sum is calculated year by year:
$25+7-5 = 27$$27 + 0+5-20-6 = 6$$6 + 0+5+0-3 = 8$$8 + 0+5+0-3 = 10$$10 + 60+8-35-3 = 40$$40 + 0+2+0-3 = 39$$39 + 0+2-20-3 = 18$$18 + 0+2+0+0 = 20$$20 + 0+2+0+0 = 22$$22 + 15+2+0+0 = 39$$39 + 0 - 25 + 0 = 14$Ultimate access to all questions.
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Q.3932 Suppose that you are given assets, liabilities, and their respective expiry terms of a financial institution, as shown in the table below. Given that the assets bear no default risk, no liquidity options are embedded within deposits, and the assets and the liabilities have been ordered according to their maturity, disregarding which kind of contract they are. Study the table to build the TSECF for the institution.
| Expiry | Notional Positive Cashflows | Interest on Positive Cashflows | Notional on Negative Cashflows | Interest on Negative Cashflows |
|---|---|---|---|---|
| 1 | 25 | 7 | 0 | −5 |
| 2 | 0 | 5 | −20 | −6 |
| 3 | 0 | 5 | 0 | −3 |
| 4 | 0 | 5 | 0 | −3 |
| 5 | 60 | 8 | −35 | −3 |
| 6 | 0 | 2 | 0 | −3 |
| 7 | 0 | 2 | −20 | −3 |
| 8 | 0 | 2 | 0 | 0 |
| 9 | 0 | 2 | 0 | 0 |
| 10 | 15 | 2 | 0 | 0 |
| > 10 | 0 | − | −25 | 0 |
Calculate the TSECCF for the assets and liabilities with a term of more than 10 years to expiry.
A
10
B
14
C
27
D
39