Sei sulla pagina 1di 1

FINANCIAL DERIVATIVES

FORWARD CONTRACT QUESTIONS


1. Calculate the price for a T-bill with a face value of $10,000, 153 days to maturity, and a discount yield of 1.74
percent.
2. Calculate the asked discount yield for a T-bill that has 69 days to maturity, a face value of $10,000, and a price of
$9,950.
3. Assume that 60-day LIBOR is 4.35 percent. You are based in London and need to borrow $20,000,000 for 60 days.
What is the total amount you will owe in 60 days.
4. The treasurer of Company A expects to receive a cash inflow of $15,000,000 in 90 days. The treasurer expects
short-term interest rates to fall during the next 90 days. In order to hedge against this risk, the treasurer decides to
use an FRA that expires in 90 days and is based on 90-day LIBOR. The FRA is quoted at 5 percent. At expiration,
LIBOR is 4.5 percent. Assume that the notional principal on the contract is $l5,000,000.
a) Indicate whether the treasurer should take a long or short position to hedge interest rate risk.
b) Using the appropriate terminology, identify the type of FRA used here.
c) Calculate the gain or loss to Company A as a consequence of entering the FRA.
5. Suppose that a party wanted to enter into a FRA that expires in 42 days and is based on 137-day LIBOR. The dealer
quotes a rate of 4.75 percent on this FRA. Assume that at expiration, the 137-day LIBOR is 4 percent and the
notional principal is $20,000,000.
a) What is the term used to describe such nonstandard instruments?
b) Calculate the FRA payoff on a long position.
6. Assume Sun Microsystems expects to receive €20,000,000 in 90 days. A dealer provides a quote of $0.875 for a
currency forward contract to expire in 90 days. Suppose that at the end of 90 days, the rate is $0.90. Assume that
settlement is in cash. Calculate the cash flow at expiration if Sun Microsystems enters into a forward contract
expiring in 90 days to buy dollars at $0.875.
7. Consider a security that sells for $1,000 today. A forward contract on this security that expires in one year is
currently priced at $1,100. The annual rate of interest is 6.75 percent. Assume that this is an off-market forward
contract.
a) Calculate the value of the forward contract today, V,(O,T).
b) Indicate whether payment is made by the long to the short or vice versa.
8. A corporate treasurer wishes to hedge against an increase in future borrowing costs due to a possible rise in short-
term interest rates. She proposes to hedge against this risk by entering into a long 6 X 12 FRA. The current term
structure for LIBOR is as in table 1.
a) Indicate when this 6 X 12 FRA expires and identify which term of the LIBOR this FRA is based on.
b) Calculate the rate the treasurer would receive on a 6 X 12 FRA.
c) Suppose the treasurer went long this FRA. Now, 45 days later, interest rates have risen and the LIBOR
term structure is as in table 2. Calculate the market value of this FRA based on a notional principal of
$10,000,000.
d) At expiration, the 180-day LIBOR is 6.25 percent. Calculate the payoff on the FRA. Does the treasurer
receive a payment or make a payment to the dealer?

Table 1: Current term structure Table 2: Current term structure


Term (days) Interest Rate (%) Term (days) Interest Rate (%)
30 5.10 135 5.90
90 5.25 315 6.15
180 5.70
360 5.95

Potrebbero piacerti anche