Exam 23: Futures, Swaps, and Risk Management

Suppose that the risk-free rates in the United States and in the United Kingdom are 4% and 6%, respectively.The spot exchange rate between the dollar and the pound is $1.60/BP.What should the futures price of the pound for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs?

If you sold an S&P 500 Index futures contract at a price of 950 and closed your position when the index futures was 947, you incurred

Arbitrage proofs in futures market pricing relationships

Which one of the following stock index futures has a multiplier of 25 euros times the index?

Which one of the following stock index futures has a multiplier of $100 times the index value?

Hedging one commodity by using a futures contract on another commodity is called

Covered interest arbitrage

If interest rate parity does not hold,

You are given the following information about a portfolio you are to manage.For the long term, you are bullish, but you think the market may fall over the next month. What is the dollar value of your expected loss?

Which one of the following stock index futures has a multiplier of $50 times the index value?

Suppose that the risk-free rates in the United States and in Canada are 3% and 5%, respectively.The spot exchange rate between the dollar and the Canadian dollar (C$) is $0.80/C$.What should the futures price of the C$ for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs.

Suppose that the risk-free rates in the United States and in the United Kingdom are 6% and 4%, respectively.The spot exchange rate between the dollar and the pound is $1.60/BP.What should the futures price of the pound for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs.

You are given the following information about a portfolio you are to manage.For the long term, you are bullish, but you think the market may fall over the next month. What is the dollar value of your expected loss?

A swap

You are given the following information about a portfolio you are to manage.For the long term, you are bullish, but you think the market may fall over the next month. For a 200-point drop in the S&P 500, by how much does the value of the futures position change?

If you purchased one S&P 500 Index futures contract at a price of 1,550 and closed your position when the index futures was 1,547, you incurred

One reason swaps are desirable is that

Which one of the following stock index futures has a multiplier of 50 Hong Kong dollars times the index?

In the equation Profits = a + b * ($/₤ exchange rate), b is a measure of

If covered interest arbitrage opportunities exist,