Questions from Financial Markets

Q: Suppose that the pension you are managing is expecting an inflow of

Suppose that the pension you are managing is expecting an inflow of funds of $100 million next year and you want to make sure that you will earn the current interest rate of 8% when you invest the inc...

Q: How would you use the options market to accomplish the same thing

How would you use the options market to accomplish the same thing as in Problem 5? What are the advantages and disadvantages of using an options contract rather than a futures contract?

Q: Explain why greater volatility or a longer term to maturity leads to

Explain why greater volatility or a longer term to maturity leads to a higher premium on both call and put options.

Q: A bank issues a $100,000 variable-rate 30

A bank issues a $100,000 variable-rate 30-year mortgage with a nominal annual rate of 4.5%. If the required rate drops to 4.0% after the first six months, what is the impact on the interest income for...

Q: If your company has to make a 10 million euros payment to

If your company has to make a 10 million euros payment to a German company in June, three months from now, how would you hedge the foreign exchange risk in this payment with a 125,000 euros futures co...

Q: Suppose that your company will be receiving 30 million euros six months

Suppose that your company will be receiving 30 million euros six months from now and the euro is currently selling for 1 euro per dollar. If you want to hedge the foreign exchange risk in this payment...

Q: A hedger takes a short position in five T-bill futures

A hedger takes a short position in five T-bill futures contracts at the price of 98 5/32. Each contract is for $100,000 principal. When the position is closed, the price is 95 12/32. What is the gain...

Q: Futures are available on three-month T-bills with a

Futures are available on three-month T-bills with a contract size of $1 million. If you take a long position at 96.22 and later sell the contracts at 96.87, how much would the total net gain or loss b...

Q: Assume the bank in the previous question partially hedges the mortgage by

Assume the bank in the previous question partially hedges the mortgage by selling three 10-year T-note futures contracts at a price of 100 20/32. Each contract is for $1,000,000. After two months, the...

Q: A bank customer will be going to London in June to purchase

A bank customer will be going to London in June to purchase £100,000 in new inventory. The current spot and futures exchange rates are as follows: Exchange Rates Dollars/Pound Period…………………….Rate Sp...