Exam 22: Futures and Forwards

An adjustment for basis risk with a value of "br" less than one means that the percent change in the spot rates is greater than the change in rate in the deliverable bond in the futures market.

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. If T-bond futures prices decrease to 81-27/32^nds,what is the value of the futures hedge position?

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.You expect to liquidate your position in 1 year upon maturity of the CD.Spot exchange rates are U.S.$0.78493 per Canadian dollar. If you wanted to hedge your bank's risk exposure,what hedge position would you take?

In a credit forward agreement hedge,the loss on the balance sheet cash position is offset completely by the gain on the off-balance-sheet credit forward agreement if the characteristics of the benchmark bond and the bank's loan to the borrower are the same.

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 sold a $100,000 Treasury bond futures contract at 99-02/32^nds yesterday.Today the Treasury bond futures settlement price is 99-31/32^nds.What is the one-day profit or loss on the Treasury bond futures position?

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/ $\le$ ,what is the spread earned on the loan by the FI in dollars after adjusting fully for exchange rates?

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 change in the value of the FI's equity for a 1 percent increase in interest rates from the current rates of 10 percent?

Futures contracts are standard in terms of all of the following EXCEPT

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. If Treasury bond futures prices are currently 89-00/32^nds,what is the value of the Treasury bond futures hedge position?

The Volcker Rule,implemented in April 2014,resulted in only the investment banking arm of a depository institutions to engage in proprietary trading.

The primary benefit of a futures exchange is

How is a hedge ratio commonly determined?

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

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

More FIs fail due to credit risk exposure than exposure to either interest rate risk or foreign exchange risk.

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

The Financial Accounting Standards Board requires that all derivatives be marked-to-market with any losses and gains transparent on FI's financial statements.

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

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 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 number of T-Bill futures contracts necessary to hedge the balance sheet if the duration of the deliverable T-bills is 0.25 years and the current price of the futures contract is $98 per $100 face value?