Interest rate parity is essentially the same as (Points : 4) the cross-rate relationship the cost of carry relationship the Garman-Kohlhagen model all of the above none of the above
Question ! 2. "etermine the appropriate price of a #uropean put on a futures if the call is $orth %&!'' the continuously compounded ris-free rate is &!' percent the futures price is %*+ the e,ercise price is %& and the e,piration is in three months! (Points : ') Q2 . 2n ono fa b o v e C+PVX=P+S 5 . 6 6+7 5e ^ 0 . 0 56 6* 3 / 1 28 0=1 . 4
Question .! 3. /hat $ould be the spot price if a stoc inde, futures price $ere % the ris-free rate $ere 0+ percent the continuously compounded dividend yield is . percent and the futures contract e,pires in three months1 (Points : ') Q. &!'' spot price 2 3(0(+!0 - +!+.)5.30) &!''
Question 4! 4. 6he current e,change rate is %0!.&3#uro! %0 !.&3#uro! 7ind the for$ard rate if current 89 ris free rate is percent the #uro-one interest rate is percent and the for$ard contract con tract is for si, months! (6he interest rates are continuously compounded!) (Points : ') 4 none of above none of the above for$ard rate 2 0!.& 5 (0(+!+5'30))3(0(+!+5'30) 2 0!.* Question &! 5. 6he value of a futures contract immediately after being mared to maret is (Points : 4)
numerically e;ual to the daily settlement amount the spot price plus the original for$ard price e;ual to the amount by $hich the price changed since the contract $as opened simply ero none of the above
Question '! 6. /hat reason might be given for not $anting to hedge the future issuance of a liability if interest rates are unusually high1 (Points : 4) the margin cost $ill be effective you are locing in a high rate transaction costs are higher futures prices are lo$er none of the above
Question ! 7. 7ind the annualied implied repo rate on a 6-bond arbitrage if the spot price is 00&!& the accrued interest is 0!4& the futures price is 00
.!4'>
04!0+>
+!>
0.!4>
Question *! 8. "etermine the amount by $hich a stoc inde, futures is mispriced if the stoc inde, is at '+ the futures is at '0 the ris-free rate is !&+ percent the dividend yield is .!*& percent and the contract e,pires in three months (Points : ')
8nderpriced by 0!.* ?verpriced by 0!00 ?verpriced by +!'4 ?verpriced by 0!+ 8nderpriced by 0!00
Question
Question 0+! 10. 9uppose you observe the spot rate in 7rance to be +!<+@389" the 8! 9! risfree interest rate of .!&> (continuously compounded) and the current ris-free (cc) interest rate in the #uroone is '!&> $hat is the theoretical value of a si, month foreign e,change futures contract in terms of @ per 89 dollar (select the closest ans$er)! (Points : ') +!**&0
+!<0<
+!<+.&
+!*&'
+!<&4
Question 00! 11. /hich techni;ue can be used to compute the minimum variance hedge ratio1 (Points : 4)
duration analysis present value
regression all of the above none of the above
Question 0! 12. Aig Aan Inc! has a portfolio of 6reasury bonds $orth %0++++++ $ith a modified duration of 0'!& and is concerned that a change in interest rates $ill negatively affect the value of the portfolio! 6he ne$est BAC in the office has been ased to de termine the optimal hedge ratio if the futures contract has a value of %<*+++ and has a modified duration of
0'!
0!&
0*!+
*!&
Question 0.! 13. Eou hold a stoc portfolio $orth %+ million $ith a beta of 0!'.! Eou $ould lie to lo$er the beta to +!<& using 9FP &++ futures $hich have a price of 4&!* and a multiplier of &+! /hat transaction should you do1 ound off to the nearest $hole contract! (Points : ') buy 0'* contracts sell 0'* contracts buy 004 contracts sell & contracts sell 004 contracts
Question 04! 14. 9uppose you buy an asset at %'+ and sell a futures contract at %'.! /hat is your profit if prior to e,piration you sell the asset at %'4 and the futures price is %'1 (Points : ') -4 -0 + -. none of the above
Question 0&! 15. 6hough a cross hedge has some$hat higher ris than an ordinary hedge it $ill reduce ris if $hich of the follo$ing occurs1 (Points : 4) futures prices are more volatile than spot prices the spot and futures contracts are correctly priced at the onset spot and futures prices are positively correlated futures prices are less volatile than spot prices none of the above
Question 0'! 16. /hich of the follo$ing distinguishes e;uity s$aps from currency s$aps1 (Points : 4) e;uity s$ap payments are al$ays hedged e;uity s$ap payments are made on the first day of the month e;uity s$ap payments can be negative e;uity s$ap payments have more credit ris none of the above
Question 0! 17. 7ind the upcoming net payment in a plain vanilla interest rate s$ap in $hich the fi,ed party pays 00 percent and the floating rate for the upcoming payment is 0+!0 percent! 6he notional amount is %& million and payments are based on the assumption of <+ days in the payment period and .'+ days in a year! (Points : ') fi,ed payer pays %'&+++ floating payer pays %&+&+++ fi,ed payer pays %&++++ fi,ed payer pays %4&+++ fi,ed payer pays %&&++++
Question 0*! 18. 7ind the upcoming payment interest payments in a currency s$ap in $hich party C pays #uros at a fi,ed rate of percent on notional amount of %&+ million #uros and party A pays 89 dollars at a fi,ed rate of ' percent on notional amount of '0!& million! Payments are annual under the assumption of .'+ days in a year and there is no netting! (Points : ') Party C pays .&+++++ #uros and Party A pays .++++++ "ollars Party C pays .&+++++ #uros and Party A pays .'<++++ "ollars Party C pays .'<++++ "ollars and Party A pays .&+++++ #uros Party C pays 4.+&+++ "ollars and Party A pays .'<++++ "ollars Party C pays ++++++ #uros and Party A pays .+&+++ "ollars
Question 0 0+-day C and have recommended that the statistical analysis method be used! ?ver the past year the HE9# Inde, has had an average daily return of +!+4&> and a daily standard deviation of 0!&*<>! Cssume a &. day trading year! (Points : ') %0&'*
%0.'0&
%00'+''<&
%.++40&
%<4.*
Question +! 20. Interest rate s$aps can be used for all of the follo$ing purposes e,cept: (Points : 4) to borro$ at the prime rate to convert a fi,ed-rate loan into a floating-rate loan to convert a floating-rate loan into a fi,ed-rate loan to speculate on interest rates to hedge interest rate ris
Question 0! 21. C maJor international ban maes a %!& million +-day pure discount lo an at IA? of *!&>! Ct the same time ho$ever it e,ercises an interest rate put that has a strie of 0+!<>! 7ind the annualied rate of return on the loan! Ignore the cost of the put! (Points : ') 00!4>
0+!<>
*!4&>
*!+<>
Question ! 22. 6he fi,ed rate on an 7C e,piring in '+ days on 0*+-day IA? $ith the '+day rate being & percent and the + day rate being ' percent is (Points : ') '!04>
!0>
!4>
'!.>
Question .! 23. /hich of the follo$ing is a limitation of using the Alac model to price interest rate options1 (Points : 4) the ris-free rate is not constant the volatility is not constant interest rates are not lognormally distributed all of the above none of the above
Question 4! 24. C payer s$aption is e;uivalent to $hich of the follo$ing instruments (Points : 4) a call option on a bond a long 6reasury bond futures option a long #urodollar futures an interest rate cap a put option on a bond
Question &! 25. 9uppose your firm invested in a callable bond recently $hen interest rates $ere high and the bond has three more years to go before the first call date! If interest rates are e,pected to fall over the ne,t three years $hich of the follo$ing is one potential strategy $ould tae advantage of this vie$! (Points : ') buy a payer s$aption sell a payer s$aption sell a receiver s$aption
buy a receiver s$aption buy an interest rate floor
=ompare and contrast the characteristics of contango bac$ardation normal contango and normal bac$ardation marets! (Points : *)
Question ! 2. 8se the follo$ing data from Lanuary .0 of a particular year for a group of Barch 4*+ options on futures contracts to ans$er parts C through G: 7utures Price: 4*.!0+ #,piration: Barch 0. is-7ree ate: +!+*4> (simple) =all Price: '!<& Put Price: &!& C! /hat is the intrinsic value of the call1 A! /hat is the time value of the call1 =! /hat is the lo$er bound of the call1 "! /hat is the intrinsic value of the put1 #! /hat is the time value of the put1 7! /hat is the lo$er bound of the put1 G! "etermine $hether put-call parity holds! (Points : 0)
Question .! 3. ?n Luly & a stoc inde, futures contract $as at .<4!*&! 6he inde, $as at .<!&4
the ris-free rate $as !*.> the dividend yield $as !+*> and the contract e,pired on 9eptember +! "etermine $hether an arbitrage opportunity $as available and e,plain $hat transactions $ere e,ecuted! (Points : *)
Question 4! 4. #,plain ho$ to determine $hether to buy or sell futures $hen hedging! /hat are the three easy approaches to resolve the determination1 (Points : *)
Question &! 5. "uring the first si, months of the year yields on long-term government debt have fallen about 0++ basis points! Eou believe that the decline in rates s over and you are interested in speculating on a rise in rates! Eou are ho$ever un$illing to assume much ris so you decide to do an intramaret spread! 8se the follo$ing information to construct a 6-bond futures spread on Luly 0& and determine the profit $hen the position is closed on Hovember 0&! Luly 0& "ecember 7utures Price: ' <3. Barch 7utures Price: & <3. Hovember 0& "ecember 7utures Price: < 0.3. Barch 7utures Price: * <3. (Points : *)
Question '! 6. =onsider a %.+BB notional amount interest rate s$ap $ith a fi,ed rate of > paid ;uarterly on the basis of <+ days in the ;uarter and .'+ days in the year! 6he first floating payment is set at !>! =alculate the first net payment and identify $hich party the party paying fi,ed or the party paying floating pays! (Points : *)
Question ! 7. =onsider a currency s$ap for %0+BB and 9$iss 7ranc 0&BB! ?ne party pays dollars at a fi,ed rate of <> and the other pays 9$iss 7rancs at a fi,ed rate of *>! 6he payments are made semiannually based on the e,act day count and .'+ days in a year! 6he current period has 0*0 days! =alculate the ne,t payment each party maes! (Points : *)
Question *! 8. #,plain ho$ a for$ard s$ap is lie a s$aption and ho$ it is different! (Points : *)
