3404 midterm

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3404 midterm
2015-10-22 05:35:01
3404 midterm

3404 midterm
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  1. number of future contracts needed for hedge
    cash position size in d * beta / contract size in d
  2. original basis
    spot - forward
  3. basis - if there is gain in future, there is ......
    loss in basis
  4. if your hedge position is short future, in basis terms, you gain when future price
  5. basis - gain in future/loss in spot - calculation
    current - original
  6. hedge ratio;
    1(delta of cash position)/delta of hedge position
  7. put call parity
    c-p = f - k, where f and k discounted at id
  8. in put call parity arbitrage, negative k means...and it is a ....CF at t=0
    borrow k amount of money; positive
  9. in put call parity arbitrage, positive f means.... and it is a ... CF at t=0 becuase....
    • long forward;
    • negative, you need to deposit money today to be able to buy in future
  10. in put call parity arbitrage, negative f means.... and it is a ... CF at t=0 becuase....
    • short forward;
    • positive, you discount the cash inflow in future to PV
  11. at reset, if A originally pays fixed interest rate and fixed interest rate rises, A gain/lose? By how much?
    • gain;
    • (notional amount * difference in interest rate), discounted at current interest rate
  12. relationship between notional principal, vanilla fixed rate in swaps and swap size
    • notional principal(A) * fixed rate(A) = swap size(pay)
    • counterparty's notional amount = your notional amount converted using spot
    • counterparty's notional amount * fixed rate(B) = swap size(receive)
  13. if F/S > (1+id)/(1+if), arbitrage by
    • borrow d --> get outflow
    • convert with S to f, save at if, convert at F rate->get inflow
  14. carry trade
    • borrow at id-->get outflow
    • convert at S0 to f, save at if, convert back at S1-->get inflow
  15. interest rate parity arbitrage with bid-ask
    • write the formula, try both sets and write arrows on formula
    • 1. long forward
    • 2. short forward
  16. q d/f = 1.022 means .....
    d appreciate in real terms by 2.2%
  17. formula of q
    q d/f = (1+id)/(1+if)(1+change in spot d/f)
  18. long spot = ...
    buy currency in denominator
  19. PPP arbitrage with bid-ask
    • S d/f = pd/pf
    • bid d/f -->try sell in f
    • ask d/f --->buy in f
    • change if sign agrees with strategy
  20. triangular arbitrage condition and operation
    • ask <1
    • bid >1
    • ask(ie. buy) strategy>divide ask factor
    • bid(ie. sell) strategy>mutiply bid factor
  21. cross currency swap steps
    • identify what currency swap that i want, this currency will be d
    • borrow in f by yourself and pay coupon
    • receive f from SB that offset 2
    • discount 3 CFs at swap f bid rate
    • convert 3's amount in Y0 to d at spot
    • pay d coupon at swap d ask rate
    • convert principal f amount in 2 to d and compute actual CF of all years
    • compute IRR and compare with AIC if borrow d in 2
  22. how to create a position simiar to long future on f
    • CF at t=T for long future on f: +f -d
    • steps:
    • borrow d
    • covert to f at spot
    • save f til maturity
  23. only when maturities dont match, we consider hedge ratio; otherwise hdedge ratio is always...
  24. delta cross hedge - cash position a/b = hedge ratio* hedge position c/d; you need to convert the hedge position as ....
  25. option premium makes the profit/loss triangle....no matter you are long or short option, the breakeven point of the same option is the same
  26. P&L from option
    difference between St and K(depending on put or call),plus +/- premium(depending on long or short)
  27. call option to buy demon at k num/demon is equivalent to an option to ....
    sell num at 1/k
  28. risk free rate id and if affect option premium through...
    forward price
  29. at time=t, time value is highest when ...
    spot is near strike
  30. If a firm expect dollar to appreciate, it would want to pay dollar payables ... and receive dolar receivables ...
    faster; slower
  31. the AIC cost of gettig receivables quicker
    (amount without discount - discounted price)/discounted price
  32. money market hedge
    • first list the CF at t=T
    • move the negative CF (A) at t=T to a positive CF at t=0 (A)
    • convert (A) into (B)
    • save (B)
  33. for forwards, bid-ask spread will be large when..
    • low liquidity currency
    • long dated
    • small transaction
  34. advantages/usage of swaps
    • used to hedge long term repeated exposures
    • low cost for plain vanilla swap
  35. futures pricing
    future = spot(1+risk free rate - interest income/dividend)

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