An FRA market maker sells a EUR 100 million 3v6 FRA at a rate of 7.52%....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
An FRA market maker sells a EUR 100 million 3v6 FRA at a rate of 7.52%. He is exposed to the risk that interest rates will have risen by the FRA settlement date in three months' time. a. b. The dealer needs to calculate a hedge ratio. Assume 30/360, that is, 90/360 for 3 months. C. Date (spot) 3v6 FRA rate d. March futures price Current 3M spot rate 21 December 7.52% 92.50 6.85% If interest rate for the FRA period rises by 1 bp (basis point), calculate the loss to the dealer, discounting back to the spot day. Should the dealer buy or sell future contracts to hedge the FRA? Given the following specification for the Three Month Euro (Euribor) Future Notional €1,000,000 Minimum Tick Size 0.5 bp Calculate the hedge ratio. Show your expression. follows: Continued from c), after hedged with Futures, market data after 3 months as Date (spot) March futures settlement 3M spot rate Calculate the P/L (Profit and Loss). 21 March 92.38 7.625% An FRA market maker sells a EUR 100 million 3v6 FRA at a rate of 7.52%. He is exposed to the risk that interest rates will have risen by the FRA settlement date in three months' time. a. b. The dealer needs to calculate a hedge ratio. Assume 30/360, that is, 90/360 for 3 months. C. Date (spot) 3v6 FRA rate d. March futures price Current 3M spot rate 21 December 7.52% 92.50 6.85% If interest rate for the FRA period rises by 1 bp (basis point), calculate the loss to the dealer, discounting back to the spot day. Should the dealer buy or sell future contracts to hedge the FRA? Given the following specification for the Three Month Euro (Euribor) Future Notional €1,000,000 Minimum Tick Size 0.5 bp Calculate the hedge ratio. Show your expression. follows: Continued from c), after hedged with Futures, market data after 3 months as Date (spot) March futures settlement 3M spot rate Calculate the P/L (Profit and Loss). 21 March 92.38 7.625%
Expert Answer:
Answer rating: 100% (QA)
a The loss to the dealer would be calculated as follows Loss 753 685 x 100000000 x 90360 200555556 ... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
A conceptual question in accounting for derivatives is: Should gains and losses on a hedge instrument be recorded as they occur, or should they be recorded to coincide (match) with income effects of...
-
The scene is a conference room on the 10th floor of an office building on Wall Street, occupied by Anthes Enterprises, a small, rapidly growing manufacturer of electronic trading systems for...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
HR Trends Institute https://hrtrendinstitute.com/(Links to an external site.) HR Technology Discuss IT changes that you have experienced at work such as new cash register or inventory system or...
-
Depletion ComputationsOil Federer Drilling Company has leased property on which oil has been discovered. Wells on this property produced 18,000 barrels of oil during the past year that sold at an...
-
Who is supposed to obey accounting standards in the United States? Are they followed in practice?
-
Discuss what is meant by the tone at the top and why it is important. Further, discuss whether you feel it is ethical to be a whistle-blower.
-
Ken Sulejmanagic, aged 19, signed up for a course in scuba diving taught by Madison at the YMCA. Before the instruction began, Ken was required to sign a form releasing Madison and the YMCA from...
-
Please answer with detailed and good reasons as why the chosen option is right and why other options are wrong also make sure the answer is 100% correct, else leave it for the other tutor to answer....
-
1. A saturated sample of soil weighed 138.89g before drying and 112.89 after drying.If the dimensions of the sample were 35mm diameter and 70mm long, calculate: 2. The voids ratio to 3 decimal...
-
Write a report to Analysis of Differential Effect of Chocolate Consumption on the Male and Female Students Academic Test Performance
-
Explain the concept of proof by refutation.
-
What problems did the developers of Chinook face? What new techniques did they add to simple Minimax with alpha-beta pruning? Would these techniques extend well to other games?
-
Explain in laymans terms what the law of the excluded middle means. What difficulties might you encounter in logical deduction if you ignored the law of the excluded middle?
-
Explain the rule of modus ponens. Explain how it is used in everyday life.
-
Discuss the approach you would take to building a system for playing Scrabble or another word game of the sort. What limitations does your system have? How likely do you think it is that your system...
-
Galileo determined the relationship between the length of a pendulum and its period. How would you design and execute and experiment to determine the relationship of a pendulum's length and its...
-
Consider the function f and its graph. a. Estimate the zeros of the area function b. Estimate the points (if any) at which A has a local maximum or minimum. c. Sketch a graph of A, for 0 x 10,...
-
A radio tower 500 feet high is located on the side of a hill with an inclination to the horizontal of 5 See the figure. How long should two guy wires be if they are to connect to the top of the tower...
-
Without solving, determine the character of the solutions of each equation in the complex number system. 2x 2 + 3x = 4
-
In problem, verify that the functions f and g are inverses of each other by showing that f(g(x)) = x and g(f(x)) = x. Give any values of x that need to be excluded from the domain of f and the domain...
-
Consider a publicly held company whose products you are familiar with. Some examples might include: Access the companys public website and search for its most recent annual report. (Some companies...
-
The 2014 financial statements of LVMH Moet Hennessey-Louis Vuitton S.A.LVMH is a Paris-based holding company and one of the worlds largest and best-known luxury goods companies. As a member-nation of...
-
Assume that an income statement contains each of the three sections listed below. Which will be the last section presented in the income statement? a. Gross profit b. Income from continuing...
Study smarter with the SolutionInn App