Question 1(7 points)

Saved

Interest rate parity is essentially the same as

Question 1 options:

	none of the above
	all of the above
	the Garman-Kohlhagen model
	the cost of carry relationship
	the cross-rate relationship

Question 2(12 points)

Saved

Determine the appropriate price of a European put on a futures if the call is worth $5.66, the continuously compounded risk-free rate is 5.6 percent, the futures price is $80, the exercise price is $75, and the expiration is in three months.

Question 2 options:

	$1.62
	$0.73
	$0.54
	$11.67
	none of the above

Question 3(12 points)

Saved

What would be the spot price if a stock index futures price were $77, the risk-free rate were 10 percent, the continuously compounded dividend yield is 3 percent, and the futures contract expires in three months?

Question 3 options:

	none of the above
	75.66
	73.70
	79.45
	78.29

Question 4(12 points)

Saved

The current exchange rate is $1.35/Euro. Find the forward rate if current US risk free rate is 2 percent, the Euro-zone interest rate is 7 percent, and the forward contract is for six months. (The interest rates are continuously compounded.)

Question 4 options:

	1.214
	1.157
	1.280
	1.198
	none of the above

Question 5(7 points)

Saved

The value of a long position in a forward contract at expiration is

Question 5 options:

	none of the above
	the spot price minus the original forward price discounted to expiration
	the original forward price discounted to expiration
	the spot price minus the original forward price
	the spot price plus the original forward price

Question 6(7 points)

Saved

Which of the following is not a risk of program trading?

Question 6 options:

	none of the above
	the stocks cannot be purchased simultaneously
	the dividends are not certain
	fractional contracts cannot be purchased or sold
	the stocks cannot be simultaneously sold at expiration

Question 7(12 points)

Saved

Find the annualized implied repo rate on a T-bond arbitrage if the spot price is 122.25, the accrued interest is 1.58, the futures price is 123.75 the Conversion Factor is 1.025, the accrued interest at delivery is 0.90, and the holding period is three months.

Question 7 options:

	0.77%
	1.23%
	13.04%
	14.10%
	13.25%

Question 8(12 points)

Saved

Determine the amount by which a stock index futures is mispriced if the stock index is at 260, the futures is at 261, the risk-free rate is 7.50 percent, the dividend yield is 3.85 percent, and the contract expires in three months

Question 8 options:

	Underpriced by 1.11
	Overpriced by 1.0
	Overpriced by 0.64
	Overpriced by 0.64
	Underpriced by 1.38

Question 9(7 points)

Saved

Suppose you observe the spot S&P 500 index at 1,210 and the three month S&P 500 index futures at 1,205. Based on carry arbitrage, you conclude

Question 9 options:

	none of the above
	the dividend yield is higher than the risk-free interest rate
	the spot price is too high relative to the observed futures price
	this futures market is indicating that the spot price is expected to fall
	this futures market is inefficient because the futures price is below the spot price

Question 10(12 points)

Suppose you observe the spot rate in France to be 0.75/USD, the U. S. risk-free interest rate of 3.75% (continuously compounded), and the current risk-free (cc) interest rate in the Eurozone is 6.75%, what is the theoretical value of a six month foreign exchange futures contract in terms of per US dollar (select the closest answer).

Question 10 options:

	0.7752
	0.7275
	0.7394
	0.7485
	0.7608

Question 11(7 points)

Saved

Which of the following measures is used in the price sensitivity hedge ratio for bond futures?

Question 11 options:

	none of the above
	variance
	correlation
	duration
	beta

Question 12(12 points)

Saved

Big Bank, Inc. has a portfolio of Treasury bonds worth $1,000,000 with a modified duration of 16.5 and is concerned that a change in interest rates will negatively affect the value of the portfolio. The newest MBA in the office has been asked to determine the optimal hedge ratio if the futures contract has a value of $98,000 and has a modified duration of 9.25 years. Help this new MBA out and determine the optimal hedge ratio.

Question 12 options:

	8.75
	18.20
	12.75
	16.27
	14.78

Question 13(12 points)

Saved

You hold a stock portfolio worth $20 million with a beta of 1.63. You would like to lower the beta to 0.95 using S&P 500 futures, which have a price of 475.8 and a multiplier of 250. What transaction should you do? Round off to the nearest whole contract.

Question 13 options:

	sell 114 contracts
	sell 57 contracts
	buy 114 contracts
	sell 168 contracts
	buy 168 contracts

Question 14(12 points)

Saved

Suppose you buy an asset at $63 and sell a futures contract at $63. What is your profit if, prior to expiration, you sell the asset at $66 and the futures price is $68?

Question 14 options:

	none of the above
	-5
	3
	-1
	-2

Question 15(7 points)

Saved

Though a cross hedge has somewhat higher risk than an ordinary hedge, it will reduce risk if which of the following occurs?

Question 15 options:

	none of the above
	futures prices are less volatile than spot prices
	spot and futures prices are positively correlated
	the spot and futures contracts are correctly priced at the onset
	futures prices are more volatile than spot prices

Question 16(7 points)

Saved

Which of the following distinguishes equity swaps from currency swaps?

Question 16 options:

	none of the above
	equity swap payments have more credit risk
	equity swap payments can be negative
	equity swap payments are made on the first day of the month
	equity swap payments are always hedged

Question 17(12 points)

Saved

Find the upcoming net payment in a plain vanilla interest rate swap in which the fixed party pays 11 percent and the floating rate for the upcoming payment is 10.1 percent. The notional amount is $25 million and payments are based on the assumption of 90 days in the payment period and 360 days in a year.

Question 17 options:

	fixed payer pays $550,000
	fixed payer pays $45,000
	fixed payer pays $50,000
	floating payer pays 505,000
	fixed payer pays $65,000

Question 18(12 points)

Saved

Find the upcoming payment interest payments in a currency swap in which party A pays Euros at a fixed rate of 7 percent on notional amount of $50 million Euros and party B pays US dollars at a fixed rate of 6 percent on notional amount of 61.5 million. Payments are annual under the assumption of 360 days in a year, and there is no netting.

Question 18 options:

	Party A pays 2,000,000 Euros and Party B pays 3,075,000 Dollars
	Party A pays 4,305,000 Dollars and Party B pays 3,690,000 Dollars
	Party A pays 3,690,000 Dollars and Party B pays 3,500,000 Euros
	Party A pays 3,500,000 Euros and Party B pays 3,690,000 Dollars
	Party A pays 3,500,000 Euros and Party B pays 3,000,000 Dollars

Question 19(12 points)

Saved

My local bank has a portfolio of $250 million invested in an NYSE Index. The regulators want a 5% 20-day VAR and have recommended that the statistical analysis method be used. Over the past year, the NYSE Index has had an average daily return of 0.0475% and a daily standard deviation of 1.7589%. Assume a 253 day trading year.

Question 19 options:

	$30,072,415
	$11,606,695
	$21,756,287
	$32,447,415
	$142,734,250

Question 20(7 points)

Saved

Equity swaps can be used for all of the following except:

Question 20 options:

	none of the above
	to synthetically re-align an equity portfolio
	to convert dividends into capital gains
	to synthetically sell stock
	to synthetically buy stock

Question 21(12 points)

Saved

A major international bank makes a $7.5 million 270-day pure discount loan at LIBOR of 7.9%. At the same time, however, it exercises an interest rate put that has a strike of 9.75%. Find the annualized rate of return on the loan. Ignore the cost of the put.

Question 21 options:

	8.05%
	8.09%
	11.47%
	10.29%
	9.37%

Question 22(12 points)

Saved

The fixed rate on an FRA expiring in 60 days on 180-day LIBOR with the 60-day rate being 6 percent and the 270 day rate being 7.2 percent is

Question 22 options:

	6.23%
	10.80%
	6.14%
	9.26%
	7.47%

Question 23(7 points)

Saved

An FRA differs from an interest rate swap in which of the following ways?

Question 23 options:

	none of the above
	FRAs are used only by banks and swaps are used only by corporations
	Traditionally the payment in an FRA is delayed
	FRAs are federally regulated
	An FRA has more credit risk

Question 24(7 points)

Saved

Which of the following strategies replicates a long position in an FRA?

Question 24 options:

	long a receiver swaption
	short a long-term Treasury bond futures and short a short-term Treasury bond futures
	long a Eurodollar option on a futures
	long a Eurodollar futures and short a Eurodollar option
	long a long term Eurodollar time deposit and short a short-term Eurodollar time deposit

Question 25(12 points)

Saved

Suppose your firm issued a callable bond two years ago and it has three more years to go before the first call date. If interest rates have fallen over the past two years and you believe rates will not stay this low and that it would be in the firm's best interest to lengthen the duration of the liabilities, which of the following is one potential strategy to accomplish the objective of lengthening the duration while also securing the lowering interest rate.

Question 25 options:

	buy an interest rate floor
	buy a receiver swaption
	sell a receiver swaption
	sell a payer swaption
	buy a payer swaption