Explanation:
The Term Structure of Expected Cumulative Cash Flows (TSECCF) is the sum of all net cash flows up to a certain expiry term.
Net Cash Flow = Notional Positive Cashflows + Interest Positive Cashflows + Notional Negative Cashflows + Interest Negative Cashflows.
Cumulative Cash Flow at Year 6 = 22 + (-9) + 2 + 3 + 52 + (-1) = 69. Therefore, the correct answer is D.
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Q.74 You are given the assets, liabilities, and their respective expiry terms of a financial institution XYZ, as shown in the table below. Given that the assets bear no default risk, no liquidity options are embedded within the deposit, and both the assets and the liabilities have been ordered according to their maturity, disregarding which kind of contract they are. Study the table for building a TSECF for the institution.
| Expiry | Notional Positive Cashflows | Interest Positive Cashflows | Notional Negative Cashflows | Interest Negative Cashflows |
|---|---|---|---|---|
| 1 | 20 | 6 | 0 | −4 |
| 2 | 0 | 5 | −10 | −4 |
| 3 | 0 | 5 | 0 | −3 |
| 4 | 0 | 5 | 0 | −2 |
| 5 | 50 | 5 | 0 | −3 |
| 6 | 0 | 2 | 0 | −3 |
| 7 | 0 | 2 | −70 | −3 |
| 8 | 0 | 2 | 0 | 0 |
| 9 | 0 | 2 | 0 | 0 |
| 10 | 30 | 2 | 0 | 0 |
| > 10 | 0 | − | −20 | 0 |
What is TSECCF for the assets and liabilities with 6 years expiry term?
A
70
B
22
C
18
D
69