Question 4 8 10-year gilt - 10-year bund 7 Yield % 5 4 3 Jan. June March Date Trade put on here Assume that the 10-year bund has a EU 68.10 DV01 (dollar value of a basis point) The 10-year gilt has a 83.40 DVO1 The /EU exchange rate is 1.2767 Sterling Pound to an EU The current spread between the Gilt and the Bund is 91 bps. If you expect the spread to widen to 160 points in a month, how should you put on trades to benefit from such speculation? Assumption: The exchange rate does not change over the course of the trade a. The gilt increases by 91bps b. The bund decreases by 91bps c. The gilt decreases by 9bps and the bund decreases by 100bps d. The gilt increases by 105bps and the bund increases by 14bps. Examine the effect of changes in exchange rate in this trade.