Exam 9: Using Derivatives to Manage Interest Rate Risk

How many 90-day Eurodollar futures contracts should a bank purchase to hedge the roll-over of a 6-month, $20 million loan if loan rates and Eurodollar rates have the same volatility?

What is a microhedge?

A bank can establish a floor on interest rate costs by:

Swap participants are subject to:

When you own the underlying security, your spot position is _______.

Which of the following is not true regarding the basis?

A spreader:

Speculators take a position to reduce their risk profile.

Which of the following is not a difference between futures and forward contracts?

Most interest rate swaps are set up for:

A long hedge would be appropriate for a bank that wants to reduce its cash market risk associated with .a decline in interest rates.

A bank anticipates it will need to borrow funds in the Eurodollar market in the future. It hedges by selling futures contracts. If rates decline, which of the following is true?

Financial futures are:

The "initial margin" on a futures contract:

A trader buys a 90-day Eurodollar futures contract at 95.25. The next day, interest rates rise to 5.25%. Which of the following is true? Assume that the initial and maintenance margins are $5,000.

Which of the following is not a similarity among interest rate swaps, financial futures and FRAs.

Arbitrageurs take relatively low-risk positions.

Derivatives can be a cost-effective way to manage interest rate risk.

If a hedger is owns the underlying security, he will be long the futures position.

To buy a futures contract, one must post a(n):