Question

QUESTION 1

S&P Latin America 40 Equity Index is prepared by S&P Dow Jones and includes the 40 largest cap companies in Brazil, Chile, Colombia, Mexico, and Peru. In all the S&P40 captures about 70% of LatAm's total market capitalization

True

False

QUESTION 2

1. If a CFO in the US sells EUR in the US' forward or futures market then he or she will have to make the physical delivery of the EUR to the buyer upon settlement

   True

   False

QUESTION 3

1. A bond fund manager is planning to go long Mexican UMS USD government bond (A) and hedge it by shorting PEMEX bonds (B).

   If bond A has a DV01 of $0.02 and bond B has a DV01 of $0.005, what should be the hedge ratio for the long UMS short PEMEX trade?

   Formula: Delta Pb = - DV01 x Pb x Delta y (in %) Hedge Ratio = DVO1(A)/DV01(B)

   	A.	2
   	B.	4
   	C.	6
   	D.	8
   	E.	0.25

QUESTION 4

1. If you are bullish the Chilean Peso (COP), three possible trades to make money on its appreciation would be: (a) write USD puts; (b) sell USD forward; and (c) sell USD futures.

   True

   False

QUESTION 5

1. Please mark the only FALSE statement regarding interest rate and yield curve trades in local currency debt in Latin America

   	A.	Receiving rates is equivalent to being long a bond
   	B.	Paying rates is equivalent to being short a bond
   	C.	If a trader expects the yield curve to steepen, then she can implement it by paying long rates and receiving short rates
   	D.	If a trader expects the yield curve to flatten, then she can implement it by paying long rates and receiving short rates
   	E.	A receiver of rates will make money (P&L positive) if interest rates decline

Answer 1

1. The statement is TRUE that S&P Latin America 40 Equity Index is prepared by S&P Dow Jones and includes the 40 largest cap companies in Brazil, Chile, Colombia, Mexico, and Peru. In all the S&P40 captures about 70% of LatAm's total market capitalization

2. FALSE, there is no need of making the physical delivery as there is counterparty involved.

3.  Hedge Ratio = DVO1(A)/DV01(B) = $0.02/ $0.005 = 0.25

4. FALSE, we will not do any of thing as it is the opposite situation wherein USD will be stronger

5.  FALSE staement is given below:

If a trader expects the yield curve to steepen, then she can implement it by paying long rates and receiving short rates