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Which is not true regarding interest rate futures contracts

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Reference no: EM132932234

A bank quotes me the following foreign exchange and interest rates. You can borrow, or lend, or buy and sell at each price: 1 USD = 108.0000 JPY and 1-year JPY interest rates are 2.0% per annum and 1 year USD interest rates are 3.0% per annum

Problem 1. What is the implied 1-year USD-JPY forward rate based on the spot rate of 108.000?

(a) 106.95145
(b) 109.05882
(c) 108.00514
(d) 107.45246
(e) None of the above

Problem 2. Given the interest rate difference between the USD (3.0% per annum) and the JPY (2.0% per annum) would you expect:

(a) The USD to be at a discount in the forward market and the JPY at a premium
(b) The JPY to be at a discount in the forward market and the USD at a premium
(c) The USD and the JPY should both be at a premium
(d) The USD and the JPY should both be at a discount
(e) In terms of USD, the forward rate should be higher than the spot rate

Problem 3. Which of the following is NOT true regarding interest rate futures and forward contracts?

a. forward contracts can be of any desired size, but futures contract size is standardised per currency
b. futures contract prices are arrived at by bid and offer quotes, whereas forward contract prices are by open outcry in the "pit" by floor traders
c. parties of a futures contract are unknown to each other, but parties of a forward contract are in direct contact with each other
d. futures contracts are rarely delivered on, but forward contracts are always delivered on
e. All the above statements are not true

Reference no: EM132932234

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