Explanation:
The Term Structure of Expected Cumulative Cash Flows (TSECCF) is found by calculating the net cash flow (Positive Notional + Positive Interest + Negative Notional + Negative Interest) for each period and summing them cumulatively.
Thus, the TSECCF at a 6-year expiry term is 69.
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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
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