Exam 22: Futures and Forwards

An FI has reduced its interest rate risk exposure to the lowest possible level by selling sufficient futures to offset the risk exposure of its whole balance sheet or cash positions in each asset and liability. The FI is involved in

A U.S. bank issues a 1-year, $1 million U.S. CD at 5 percent annual interest to finance a C$1.274 million investment in 2-year fixed-rate Canadian bonds selling at par and paying 7 percent annually. The U.S. bank expects to liquidate its position in 1 year upon maturity of the CD. Spot exchange rates are US$0.78493 per Canadian dollar. If the U.S. bank wanted to hedge its bank's risk exposure, what hedge position would it take?

The average duration of the loans is 10 years. The average duration of the deposits is 3 years. What is the leveraged-adjusted duration gap of the bank's portfolio?

Use the following two choices to identify whether each intermediary or entity is a net buyer or net seller of credit derivative securities. -Banks

An FI has a 1-year 8-percent US$160 million loan financed with a 1-year 7-percent UK£100 million CD. The current exchange rate is $1.60/£. If the exchange rate remains the same, what is the dollar spread earned by the bank at the end of the year?

A U.S. bank issues a 1-year, $1 million U.S. CD at 5 percent annual interest to finance a C$1.274 million investment in 2-year fixed-rate Canadian bonds selling at par and paying 7 percent annually. The U.S. bank expects to liquidate its position in 1 year upon maturity of the CD. Spot exchange rates are US$0.78493 per Canadian dollar. What is the end-of-year profit or loss on the bank's cash position if in one year Canadian bond rates increase to 7.5 percent? Assume no change in either current U.S. interest rates or current exchange rates. (Choose the closest answer)

Catastrophe futures contracts

It is not possible to separate credit risk exposure from the lending process itself.

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

Conyers Bank holds Treasury bonds with a book value of $30 million. However, the Treasury bonds currently are worth $28,387,500. How can the portfolio manager use futures markets to protect against the risk exposure of rising interest rates?

All bonds that are deliverable under a Treasury bond futures contract have a maturity of 20 years and an interest rate of 8 percent.

Routine hedging will allow the FI to achieve greater return from the assets and liabilities on the balance sheet.

The primary benefit of a futures exchange is

Which of the following identifies the largest group of derivative contracts as of June 2012?

A U.S. bank issues a 1-year, $1 million U.S. CD at 5 percent annual interest to finance a C$1.274 million investment in 2-year fixed-rate Canadian bonds selling at par and paying 7 percent annually. The U.S. bank expects to liquidate its position in 1 year upon maturity of the CD. Spot exchange rates are US$0.78493 per Canadian dollar. What is the end-of-year profit or loss on the bank's cash position if in one year the exchange rate falls to US$0.765/C$1? Assume there is no change in interest rates. (Choose the closest answer)

Conyers Bank holds Treasury bonds with a book value of $30 million. However, the Treasury bonds currently are worth $28,387,500. If T-bond futures prices decrease to 81-27/32^nds, what is the value of the futures hedge position?

In a forward contract agreement, the quantity of product to be traded, the time of the actual trade and the price are determined at the time of the agreement.

Use the following two choices to identify whether each intermediary or entity is a net buyer or net seller of credit derivative securities. -Corporations

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

An agreement between a buyer and a seller at time 0 to exchange a pre-specified asset for cash at a specified later date is the characteristic of a