Angela, a new investor, has contacted you with a question about the swap market. Provide a response to her question: “A swap agreement allows two companies to swap payments. Presumably, both parties believe that this agreement will make them better off. If the markets are efficient, how can a swap make both participants better off?” Answer this with respect to both interest rate and currency swaps.
Answer to relevant QuestionsDavid says that “CDS is essentially the same as buying default insurance on the risky corporate bond, where the buyer pays for the default protection and the seller sells the protection.” Thus he concludes that CDS is ...Assume another investor takes a €100,000 short position in the six-month euro forward contract with forward rate of C$1.50 per euro. Determine the investor’s profit (loss) if the spot rate in six months equals the ...Briefly state all the factors that affect the value of a call option and a put option.Fill in the missing information in the following table for a non-dividend-paying stock and European calloptions.The current price of TSY Inc. is $75. In one year, the price could be either $50 or $100. The risk-free rate is 5 percent per year. Construct a portfolio with the same payoff as a call option. What is the most you would pay ...
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