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- Suppose you borrow RM10,000,000 in the interbank
money market at a KLIBOR yield of 6% p.a for a term of 1 month.
Should you buy or sell KLIBOR futures contract if you were to hedge against interest rate risks?
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- Suppose you borrow RM10,000,000 in the interbank money market at a KLIBOR yield of 6% p.a for aterm of 1 month. Should you buy or sell KLIBOR futures contract if you were to hedge against interest rate risks?It is 1st January and you have an existing $10m floating rate US dollar bank deposit based on 90-day LIBOR. Current interest rate is 4% pa and there is a flat yield curve. The Eurodollar futures price on 1st January is F0 = 99. The next 2 interest rate reset dates on the deposit are the 15th February and the 15th May. The contract size for Eurodollar futures is $1m. How would you hedge this position on 1st January using Eurodollar futures contracts? Explain the outcome of the hedge if (all) yields fall to 3% pa on the 10th January and then fall to 2% pa on the 10th of May. What are the risks in the hedge?You work at the interest rates swaps trading desk of an investment bank. Exactly three years ago you entered into an interest rate swap with a client with a notional of €200 million. The client is paying a fixed rate of 4% with semi-annual frequency and receiving the floating rate LIBOR with semi-annual frequency. The interest rate swap had a maturity of six years when it was initiated.Today is payment day and you have already exchanged the cash-flows for today. What is the value of this interest rate swap for you? Use the data in Table 1. Please show your calculations. Discuss your result. Rates are continuously compounded in image attachedb
- Assume that a 5-month forward contract on a zero-coupon bond with marketface value of Php5,000 and is currently trading at Php4,777. Suppose thatthe annual risk-free interest rate is 6.28%, How much is the arbitrage profit?Paragraph Styles a) If your firm has a payment of 100 million euros due one year from now, how would you hedge the FX risk in this payment with 125 000 euros futures contracts? I(c) BingBing Co has borrowed a £25 million money market loan, where the interest rate is LIBOR +300 basis points. It is currently 15th May 20X0 and LIBOR is 2.5%. The interest rate is due to be reset for the following 3 months on the 1st July 20X0 (i.e. LIBOR will be reset). The company wishes to hedge its exposure using short term interest rate futures contracts (STIRS). Assume the actual futures price on the 15th May 20X0 is 97. Calculate and discuss the outcome of the hedge if basis is 0.2 and LIBOR is 3% on the 1st July 20X0. The discussion should include basis risk.
- Assume that you are running an Australia based company which has an account payable of EUR 125,000 due in three months. You decide to hedge out the associated foreign exchange risk using futures contracts. A futures contract of EUR125,000 is selling at A$1.5410 per euro. Suppose the next three days’ settlement prices are A$1.5399, A$1.5480, and A$1.5410. The initial margin of your performance bond account is $2,000 and maintenance margin is $1,500. What is your margin account balance at the end of the first day and what is the balance of this account at the end of the third day?Let's assume today is Feb 15, 2020 and call and put options for 10,000 euros at $1.3700 per euro are traded on the London International Financial Futures Exchange (LIFFE). The options' expiration date is July 30, 2020. If the dollar interest rate is 5%, the euro interest rate is 4.5% and the volatility of the euro is 6%, what should be the price of a call and a put? The current exchange rate is $1.3786 per euro. Call price Put priceQUESTION 3 a. The market values of liabilities and assets are RM115 and RM125, respectively for OFFSHORE bank. The average duration of this bank's assets is 1.55, whereas liability's duration is 0.90. Calculate the duration gap for OFFSHORE bank. b. Based on the calculation of duration gap in the previous questions (i.e., a), what is the change in the market value of net worth as a percentage of assets if interest rates rise from 9% to 11%. c. If DEFI involves in interest-rate forward contracts with GUMTREE, how do you complete this contract to hedge interest rate risk? The value of the contract is RM2 million in face value and offers 4.5% coupon rate. The treasury bond (i.e. financial instrument) has maturity until 2035.
- am. 122.Suppose that ABC bank decides to purchase a T-note and convert it into a STRIP. The T-note has a maturity of 6 years, pays a 6% coupon rate (semiannual) and a face value of $10,000. How many separate securities can be created? O 6 O 12 O 13This morning (Day 0) you take a short position in a pound futures contract that matures in 3 days (Day 3). The future price is $1.9750 today. The contract size is £62,500 and its initial performance bond and maintenance bond are $2,430 and $1,830, respectively. a. (b) Assuming that the daily settlement prices are indicated below, how would the daily change in settlement future prices affect your account? Show the daily gain/loss and account balance. Day 0 1 2 3 Settlement 1.9750 1.9700 1.9815 1.9907 Total Gain/Loss Account Balance b. During this period, did you receive a margin call? If you did, on what day? c. At the end of Day 3, how much in total did you make/lose on this futures contract?
