Exam 22: Futures and Forwards

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 cash spread earned by the FI if at the end of the year the $\le$ is trading at $1.63/ $\le$ in the cash market? Again adjust for all exchange rate changes.

An FI issued $1 million of 1-year maturity floating rate commercial paper.The commercial paper is repriced every three months at the 91-day Treasury bill rate plus 2 percent.What is the FI's interest rate risk exposure and how can it use financial futures and options to hedge that risk exposure?

A perfect hedge,or perfect immunization,seldom occurs.

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

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. 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)

When will the estimated hedge ratio be greater than one?

Catastrophe futures contracts

What does a low value of R² indicate when performing a linear regression of the relationship between changes in spot prices and changes in futures prices?

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

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

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 the exchange rate remains the same,what is the dollar spread earned by the bank at the end of the year?

The current price of June $100,000 T-Bonds trading on the Chicago Board of Trade is 109-24.What is the price to be paid if the contract is delivered in June?

Historical analysis of recent changes in exchange rates in both the spot and futures markets for a given currency reveals that spot rates are thirty percent more sensitive than futures prices.Given this information,the hedge ratio for this currency is

Forward contracts are individually negotiated and,therefore,can be unique.

Selling a credit forward agreement generates a payoff similar to

A credit forward agreement specifies a credit spread on a benchmark U.S.Treasury bond.

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.

The notational value of the world-wide credit derivative securities markets stood at _________ trillion as of 2015,which compares to _________ trillion as of July 2008.

Commercial banks,investment banks,and broker-dealers are the major forward market participants.

Catastrophe futures are designed to hedge extreme losses of natural disasters for property-casualty insurance companies.