Consider a corporate treasurer who would like to hedge against a rise in short-term interest rate (between Sept. 13th and Dec. 12th). At which time on Dec. 12 his firm wishes to raise $15 million by issuing Banker Acceptance (BA). The correlation between the BA and the BAX are very high (99%, assume h=1). Given that the three-month BAX futures contract represents one million of the underlying security the BA (Bankers acceptance), and for all money markets instruments the basis points (BPV, tick) represents $25, and each dollar contains 100 basis points. Use the information in the table below to answer the following questions. The duration of the hedge is 90 days, 360 days for a year. Market Information Sept. 13th Market Conditions 3-month BA rates 4.85% 1.) 3-month Dec. BAX futures $94.70 2.) Basist (BA BAX) (3.) a) (5.5) Fill in the missing information on the above table. Dec. 13th 5.25% 4.) $94.40 ( 5.) (6.) A Basis (7.) (8. 9.) (10. (11.) Answer by 1.= , 2.=,3. = ...etc. b) (15) How many BAX contracts the corporate treasurer must trade to hedge the firm's exposure, calculate the opportunity gain/loss of this strategy. What are price risk, basis risk and the value of the hedge to the hedger in this strategy? State the objectives, strategy, results and the name of the above strategy? c) (9.5) Draw the yield and price curves identify all the information obtained from the Table (including the one obtained in part a) on the two graphs. Consider a corporate treasurer who would like to hedge against a rise in short-term interest rate (between Sept. 13th and Dec. 12th). At which time on Dec. 12 his firm wishes to raise $15 million by issuing Banker Acceptance (BA). The correlation between the BA and the BAX are very high (99%, assume h=1). Given that the three-month BAX futures contract represents one million of the underlying security the BA (Bankers acceptance), and for all money markets instruments the basis points (BPV, tick) represents $25, and each dollar contains 100 basis points. Use the information in the table below to answer the following questions. The duration of the hedge is 90 days, 360 days for a year. Market Information Sept. 13th Market Conditions 3-month BA rates 4.85% 1.) 3-month Dec. BAX futures $94.70 2.) Basist (BA BAX) (3.) a) (5.5) Fill in the missing information on the above table. Dec. 13th 5.25% 4.) $94.40 ( 5.) (6.) A Basis (7.) (8. 9.) (10. (11.) Answer by 1.= , 2.=,3. = ...etc. b) (15) How many BAX contracts the corporate treasurer must trade to hedge the firm's exposure, calculate the opportunity gain/loss of this strategy. What are price risk, basis risk and the value of the hedge to the hedger in this strategy? State the objectives, strategy, results and the name of the above strategy? c) (9.5) Draw the yield and price curves identify all the information obtained from the Table (including the one obtained in part a) on the two graphs
