Suppose you observe the following one-year interest rates, spot exchange rates and futures prices. Futures contracts are available on €10,000. How much risk-free arbitrage profit could you make on one contract at maturity from this mispricing? Exchange Rate Interest Rate APR So(S/E F3s0(S/€) $1.45 = €1.00 $1.48 = €1.00 is 4% 3% (Note: If you are unable to view the image shown above, you can download it: interestTable.PNG) O $159.22. O $153.10. O $439.42. O none of the options.

Suppose you observe the following one-year interest rates, spot exchange rates and futures prices. Futures contracts are available on €10,000. How much risk-free arbitrage profit could you make on one contract at maturity from this mispricing? Exchange Rate Interest Rate APR So(S/E F3s0(S/€) $1.45 = €1.00 $1.48 = €1.00 is 4% 3% (Note: If you are unable to view the image shown above, you can download it: interestTable.PNG) O $159.22. O $153.10. O $439.42. O none of the options.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Use the following information to answer Questions 8-9: Suppose that the June 2023 Mexican peso futures contract has a current price of $0.05223/MXN and a contract size of MXN 500,000. A speculator believes that the spot price in June 2023 will be $0.05112/MXN. The speculator's anticipated profit from a a. long; MXN1,110 4 b short; MXN1,110 Clong; $1,110 short; $1,110 position in 2 peso contracts equals
What is the implied nominal interest rate on a 10-year U.S. T-notes ($100,000)futures contract that settled at 103–060? If interest rates increased by 3%, what would bethe contract’s new value?
Counterparty A can borrow from the floating rate market at LIBOR + 0.5% and Counterparty B can borrow from the Eurobond market at 7%. If Counterparty A pays 7.35% into the swap and Counterparty B pays the LIBOR rate plus 0.5% into the swap, then the overall cost to borrow by Counterparty B is: a. 7.85% b. LIBOR + 0.5% С. 7% d. LIBOR + 7.5% е. 7.35%
Q2) Suppose the current one-year euro swap rate y0[0, 1] is 1.74%, and the two-yearand three-year swap rates are 2.24% and 2.55% respectively. Euro swap rates are quotedwith annual payments and 30/360 daycount (thus α = 1). A hedge fund(HF) executes the following two trades with a dealer:1(1) The HF pays fixed and receives floating on e100 million notional of a one-year swap atthe forward swap rate.(2) The HF receives fixed and pays floating on e100 million notional of a three-year swapat the forward swap rate.Assume bid-offer costs are negligible.a) After one year, what net cashflow has the dealer paid to (or received from) the HF?b) Suppose after one year, one-year and two-year euro swap rates are unchanged. What isthe current value of the remaining part of the HF trade?c) Suppose after one year, the one-year euro swap rate is unchanged but the two-year euroswap rate is now Y%. What value of Y gives a total zero profit on the trade (at T = 1)?d) Do you like the trades the HF…
Consider a 6-month futures contract on a financial asset with dividend yield q=3.96% per year. Risk free rate is 10% per year. Current value of an asset is S0=$25. What should be the 6-month futures price on this asset, if there is no convenience yield and storage costs?
Suppose the September Eurodollar futures contract has a price of 96.4. You plan to borrow $50m for 3 months in September at LIBOR, and you intend to use the Eurodollar contract to hedge your borrowing rate. a. What rate can you secure? b. Will you be long or short the Eurodollar contract? c. How many contracts will you enter into? d. Assuming the true 3-month LIBOR is 1% in September, what is the settlement in dollars at expiration of the futures contract? (For purposes of this question, ignore daily marking-to-market on the futures contract.)
Find the hedge ratio a 1-period at-the-money put option on ¥300,000. The spot exchange rate is ¥100 = $1.00. In the next period, the yen can increase in dollar value by 15 percent or decrease by 10 percent. The risk-free rate in dollars is i$ = 5%; The risk-free rate in yen is i¥ = 1%. A.-0.44 B.-0.66 C.-0.60 D.-0.40
The one year spot interest rate is 4%. The two year spot rate is 5% and thethree year spot rate is 6%. You are quoted a swap rate of 5.5% on a 3 yearfixed-for-floating swap. Is this rate fair? Explain your response, and if it isnot fair, derive the fair swap rate. [Write no more than half of a page of A4]
Your company needs £500,000 per month. You choose to hedge half of the required amount by entering into a futures contract at $1.148/E. How much did you save by hedging if the spot price today is $1.195/£?
Suppose you borrow $10,000,000 in the interbank money market at a KLIBOR yield of 6% pa for a term of 1 month.Should you buy or sell a KLIBOR futures contract if you were to hedge against interest rate risks? explain
The futures contract for settlement in 4 months is trading at F0 = $6.35 and the cash market is trading at S1 = $6.42. The 4-month interest rate on a continuously compounded basis is 2 percent. What is the arbitrage trade that is available, the transactions and the arbitrage profit? Buy now at S1 with borrowed money and enter a short forward contract at Fo. At time T deliver the underlying, receive F0 and pay back the loan plus interest. Net profit is: $0.4200 Buy now at S1 with borrowed money and enter a short forward contract at Fo. At time T deliver the underlying, receive F0 and pay back the loan plus interest. Net profit is: $0.0280 Sell short S1 and invest proceeds at r and enter long a forward contract at Fo; at time T receive the underlying for F0, cover the short and also collect the principal plus from the bank. Net profit is: 0.1129
a. You notice that the 9-month risk free interest rates in the UK is 4% per annum withcontinuous compounding and the US rate is 7% per annum, with continuous compounding.The spot price of the Pound Sterling is $0.2500. Assume the US is your home country.Answer the following:i. What is the no-arbitrage price of the 9-month futures contract? ii. You observe that the 9-month futures price in the market is $0.2775. State why anarbitrage opportunity exists and explain how you would take advantage of thisarbitrage opportunity.(Hint: Your answer should include your general strategy in broad terms and your step-bystep approach to exploiting the arbitrage opportunity using numbers from this question)

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