Exam 9: Using Derivatives to Manage Interest Rate Risk

Speculators take a position to reduce their risk profile.

Speculators focus on avoiding or reducing risk.

The "initial margin" on a futures contract:

The basis on a futures contract is defined as:

Assume that two firms, one considered a high credit risk (HCR) and the other a low credit risk (LCR), are considering an interest rate swap.Each can borrow at the following rates: An interest rate swap would be beneficial to both parties if:

When an interest-bearing security is the underlying asset for a futures contract, it is called:

Every futures contract has a formal expiration date.

What is a macrohedge?

"Locals" trade futures for their own account.

When futures prices falls, buyers gain at the expense of sellers.

A zero cost collar:

Which of the following wishes to reduce risk?

Explain the concepts of cross hedging and basis risk.

Forward contracts rarely require a performance guarantee or collateral.

Which of the following is correct about futures contracts?

How many 90-day Eurodollar futures contracts should a bank purchase to hedge the roll-over of a 1-year, $5 million loan if loan rates and Eurodollar rates have the same volatility?

The daily change in the value due to the marking-to-market process is know as the:

When you sell a futures contract, your futures position is:

When you buy a futures contract, your futures position is:

A trader buys a 90-day Eurodollar futures contract at 95.25.The next day, interest rates fall 4.5%.Which of the following is true? Assume that the initial and maintenance margins are $5,000.