Assume your bank has an exposure that will increase interest expense by $8,200 per 1bp increase...

 

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Assume your bank has an exposure that will increase interest expense by $8,200 per 1bp increase in SOFR during Q2 of 2024. If you were to use only one contract month to hedge, which contract would you use? Mar-24 3m SOFR Contract Price Mar-24 94,7250 Jun-24 95,0000 Based on the contract you chose, what average SOFR rate could you lock in? (calculate in XX.XX% terms) What direction would trade on your selected contract to hedge against an increase in SOFR? How many 3-month SOFR contracts would you trade to hedge your exposure? What would be the contract gain if your SOFR hedge's final settlement rate is 6.00%? Assume your bank has an exposure that will increase interest expense by $8,200 per 1bp increase in SOFR during Q2 of 2024. If you were to use only one contract month to hedge, which contract would you use? Mar-24 3m SOFR Contract Price Mar-24 94,7250 Jun-24 95,0000 Based on the contract you chose, what average SOFR rate could you lock in? (calculate in XX.XX% terms) What direction would trade on your selected contract to hedge against an increase in SOFR? How many 3-month SOFR contracts would you trade to hedge your exposure? What would be the contract gain if your SOFR hedge's final settlement rate is 6.00%?

Answer rating: 100% (QA)

1 Calculate the implied SOFR rate for both Mar24 and Jun24 contracts Mar24 contract Implied rate 100 ... View the full answer