Question

10)You enter a long position in a € future contract with the size of €125,000 today. The futures expire in 90 days. The interest rates are i_$=2% and i_€=4%. The current spot rate is $1.38/€. Assume 360 days a year. If the spot rate is $1.43/€ the next day and interest rates remain the same, How much is your profit or loss for this day?

Select one:

a. $6228.80

b. $3974.78

c. $6250

d. -$6228.80

e. -$3974.78

12)

National Bank has a $200b of Adjustable Rate Mortgage (ARM) as assets on its balance sheet. The interest rate on the ARM is 3%+Libor. As a result, the bank will receive floating interest. The bank is considering hedging the risk in the interest income from the assets with a three-year interest rate swap. What should be the bank’s receipt and payment cash flows in the swap?

Select one:

a. The Bank should pay Libor and receive Libor+3% interest rate.

b. The Bank should pay Libor and receive Libor interest rate.

c. The Bank should pay fixed and Libor fixed interest rate.

d. The Bank should pay fixed and receive fixed interest rate.

e. The Bank should pay Libor and receive fixed interest rate.

Answer 1