Obtain the break even rate, Financial Management

Assignment Help:

Question 1

(a) These are merely the differences of the two prices. Consequently the mark to market losses are given by {Q1 - Q0,Q2 - Q0,Q3 - Q0,Q4 - Q0,Q5 - Q0}.

Certainly negative losses are gains.

(b) You just compute the interest accrued after multiplying by 1/360 for every day and

(c) Subsequently adding the gains and losses.

Question 2

(a) Treasurer has threats for three months starting in three months. Consequently a 3×6 FRA is needed.

(b) To obtain the break even rate we need:

852_Obtain the break even rate.png

(c) Lowest obtainable rate. (6.87%)

(d) (FRA settlement) (.0687 -.0609) (38 million)(1/4)

Question 3

(a) The futures price has moved by 34 ticks. (It moved from Qt0 = $94.90 to Qt1 = $94.56.

(b) The current implicit forward rate is given by

74_Obtain the break even rate1.png

Which signifies the buyer of the contract needs to deposit

2338_Obtain the break even rate2.png

Dollars per $100 dollars on expiry that is in three months in this case

(c) In three months the futures price shifts to Qt1 = $94.56 giving a implied forward rate of

1568_Obtain the break even rate3.png

Also a settlement of

102_Obtain the break even rate4.png

Therefore the buyer of the original contract receives compensation as if she were making a deposit of $98.725 also receiving a loan of $98.64 making a loss of

98.64 - 98.725 = -0.085 per $100 dollars Loss of $595000

Since the total involved is $7 million.

Question 4

(a) The trader will purchase (sell) the Libor-based FRA also sell (buy) Tibor based FRA. This approach the market risk inherent in the Libor positions will be eliminated to a large degree. Nevertheless Tibor and Libor fixings occur at different times consequently there still some risk in this position.

(b) Utilize two cash flow diagrams one for Libor FRA the other for the Tibor FRA. In one case the trader is paying fixed in addition to receiving floating. The other cash flow figure will display the reserve situation. In this situation the two fixed rates are known and their difference will remain fixed. The trader will have experience to the difference between the floating rates.

(c) If Libor panel is made of better-rated banks after that the Libor fixings will be lower everything else being the same. This signifies that the spread between Libor and Tibor will widen. According to this traders require to buy the spread if they decide to take such a speculative position.


Related Discussions:- Obtain the break even rate

Define which proposed capital budgeting projects to accept, For a specified...

For a specified IOS and MCC, how do financial managers decide that which proposed capital budgeting projects to accept, and which to reject? For a specified IOS and MCC, all inde

Importance of gantt charts in project communication process, Due to the com...

Due to the complexity of the tasks involved in many projects, communication of responsibility for those tasks is often helped by means of graphical planning techniques.

Calculate the price of winnebago stock , Calculate the price of Winnebago s...

Calculate the price of Winnebago stock (Winnebago has no debt so this is the market value of the firm seperated by the number of common shares outstanding.) from the cashflows you

Explain retail and wholesale banks in commercial banking, Explain about the...

Explain about the retail and wholesale banks in the commercial banking. Retail and wholesale banks: Commercial banking can also be separated within retail and wholesale b

Show the current liabilities method, Q. Show the Current Liabilities Method...

Q. Show the Current Liabilities Method? Forecasting of Current Assets as well as Current Liabilities Method: - As-per to this method an estimate is made of forthcoming period's

Example to show the companys current gearing, Q. Example to show the compan...

Q. Example to show the companys current gearing? The company's current gearing 2000/ 8500 × 100 = 23.53% The current gearing position is on the low side particularly wh

Advantages and disadvantages of investing in gilts, Advantages and Disadvan...

Advantages and Disadvantages of Investing in Gilts Advantages As the security is issued by the GOI, it has a minimal default risk. Investors have the opportunity to inves

Opportunity worth today, Assume that you can receive $25,000 per year forev...

Assume that you can receive $25,000 per year forever and that your cost of money is 7%.  What is this opportunity worth today?

Approaches of the strategic human resource management, Approaches of the St...

Approaches of the Strategic human resource management (SHRM): 1. Attempts to the human linkage of some kind activities with competency based performance measures. 2. Attemp

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd