Exam 23: Futures and Forwards

91-day Treasury bill rates = 9.71 percent 91-day Treasury bill futures rates = 9.66 percent (Reminder: Treasury bill prices are calculated using the following formula: P = FV × (1 - d_t/360) Where P = price, FV = face value, d = discount yield, and t = days until maturity.) Calculate the cash flows on the above futures contract if all interest rates increase by 1.49 percent.(That is, ΔR/(1 + R) = 1.49 percent, and 1 bp = $25.)

Which of the following measures the dollar value of futures contracts that should be sold per dollar of cash position exposure?

Delivery of the underlying asset almost always occurs in the futures market.

The average duration of the loans is 10 years.The average duration of the deposits is 3 years. Consumer loans \ 50 million Deposits \ 235 million Commercial Loans \ 200 million Equity \ 15 million Total Assets \ 250 million Total Liabilities \& Equity \ 250 million If at the end of the year, the exchange rate is $1.65/?, what is the spread earned on the loan by the FI in dollars after adjusting fully for exchange rates?

Conyers Bank holds U.S.Treasury bonds with a book value of $30 million.However, the U.S.Treasury bonds currently are worth $28,387,500. The portfolio manager for Conyers Bank wishes to sell the entire issue of Treasury bonds at a current price of 87-05/32^nds.What will be the gain or loss on the cash position since the futures contract was placed? (That is, since the bonds were valued at $28,387,500.)

The average duration of the loans is 10 years.The average duration of the deposits is 3 years. Consumer loans \ 50 million Deposits \ 235 million Commercial Loans \ 200 million Equity \ 15 million Total Assets \ 250 million Total Liabilities \& Equity \ 250 million What is the gain or loss on the futures position using T-Bonds (Duration = 9 years, $96 per $100 face value) if the shock to interest rates is 1 percent [i.e.?R/(1 + R) = 0.01 and ?R_f/(1 + R_f) = 0.011]?

Hedging foreign exchange risk in the futures market may involve uncertainty about all of the transactions necessary to achieve the hedge to fulfillment.

91-day Treasury bill rates = 9.71 percent 91-day Treasury bill futures rates = 9.66 percent (Reminder: Treasury bill prices are calculated using the following formula: P = FV × (1 - d_t/360) Where P = price, FV = face value, d = discount yield, and t = days until maturity.) An investor buys a $100,000 Treasury bond futures contract at 99-13/32^nds.The following day the Treasury bond futures settlement price is 99-26/32^nds.What is the one-day profit or loss on the Treasury bond futures position?

The hedge ratio measures the impact that tailing-the-hedge will have on the number of contracts necessary to hedge the cash position.

What is the reason for decrease in the number of futures contract needed to hedge a cash position in case of tailing the hedge?

Derivative contracts allow an FI to manage interest rate and foreign exchange risk.

A spot contract specifies deferred delivery and payment.

The payoff on a catastrophe futures contract is adjusted for the actual loss ratio of the insurer.

As a result of the Volcker Rule (2014) there was an increase in the use of derivative securities by U.S.depository institutions.

The notational value of derivative contracts for the top 25 derivative users was less than the total current credit risk exposure of those contracts as of 2015.

What is a difference between a forward contract and a future contract?

A credit forward is a forward agreement that

An FI with a negative duration gap is exposed to interest rate declines and could hedge its interest rate risk by buying forward contracts.

As a result of the negative role that over-the-counter derivative securities played during the financial crisis,

How is a hedge ratio commonly determined?