1. An investor takes the long position on a forward contract on a T-Bill that will

expire in 125 days. The forward price at which he takes his position is 2.48% on a

discount yield basis. If the underlying on this contract are T-Bills with a par value

of $500,000, the amount that the investor would have to pay at contract expiration

to take delivery of the T-Bills is closest to

2. An investor borrows $2m from XYZ Bank at LIBOR-90 plus a quoted margin

of 2%. If the LIBOR-90 effective for the 90-day loans equals 5%, the amount of

interest that the investor will pay XYZ Bank is closest to

3. An investor takes a long position on an FRA that is based on 90-day LIBOR

and has 6 months till expiration. The FRA rate equals 5%. LIBOR-90 at various

dates are given below:

Today : 5%

After 3 months: 5.5%

After 6 months: 6%

After 9 months: 6.5%

After 1 year: 7%

The payoff on the FRA to the investor assuming that the notional principal equals

$1m is closest to:

ABC Company, a British company, expects to receive $10,000,000 in 30 days. It

wants to hedge its foreign currency risk in the forward market. The forward price

of the pound contract is 0.74 pounds/$.

1. What foreign currency risk is ABC most likely trying to hedge by entering the

forward market?

2. On the forward contract, which position will ABC least likely take

3. If the exchange rate at forward contract settlement is 0.71 pounds/$, ABCs

payoff on the forward contract is closest to:

4. If the exchange rate at contract settlement were 0.75 pounds/$, ABCs net

overall inflow would be closest to

5.

A company plans to borrow $10 million for 90 days, 180 days from today. The

type of FRA and the position that the company should take on this FRA to hedge

its interest rate risk is most likely:

FRA Position

6. A company has entered into a cash-settled forward contract to sell 10m pounds

at $1.5/pound. If the exchange rate at expiration is $1.75/pound, the company

will:

7. A company enters into a 3 x 6 FRA with a notional principal of $1 million as

the short position.

The contract has a forward rate of 4%, and LIBOR-90 at FRA expiration equals

5%. At contract settlement, the company will pay:

8. Consider a T-Bill that will have 125 days to maturity at the time of forward

contract expiration.

The forward in this T-Bill is quoted at a discount of 1.24%. At expiration, the

amount that the long will pay the short for delivery of T-Bills worth $1m par is

closest to: