1. It is 1^st April today and assuming that your company need to borrow $500,000,000 on 1^st July for next 3 months. You are planning to use the Eurodollar Futures (EF) to hedge the possible change in the Libor rate between now and 1^st July. The July EF is currently trading at 95.33 and if it turns out that on 1^st July the EF is trading at 95.96. There are 92 days between 1^st July to 1^st October. What would be your total interest payment for this borrowing upon the settlement of it on 1^st October?
   1. $5,837,500.00
   2. $5,845,453.75
   3. $4,254,546.25
   4. $4,262,500.00

2. Which of the following statement is true?

1. If all companies in an industry do not hedge, a company is liable increase its cost by hedging.

2. Hedging cannot be done more easily by a companys shareholders than by the company itself.

3. If all companies in an industry hedge, a company in the industry can sometimes reduce its costs by choosing not to hedge.

4. If all companies in an industry do not hedge, a company in the industry can reduce its risk by hedging.

3. The S&P Stock Index is currently stands at 1,455.00 points. The risk-free interest rate is 9 % p.a. (continuous compounding) and the dividend yield on S&P Index is 4% per annum (continuous compounding). The fair forward price of a four-month forward contract on S&P Index should be 1,479.45 points.
   1. True
   2. False

4. Suppose that the standard deviation of monthly changes in the price of commodity A is $2.33. The standard deviation of monthly changes in a futures price for a contract on commodity B (which is similar to commodity A) is $3.55. The correlation between the futures price and the commodity price is 0.9. What is the optimum hedge ratio should be used when hedging a one-month exposure to the price of commodity A?

A. 0.59

B. 0.67

C. 1.45

D. 0.90

5. The basis is the difference between spot and futures price. A trader is hedging the sale of an asset with a short futures position. If the Future price is above the Spot price at inception and the basis strengthens unexpectedly towards the contract expiry time. Which of the following is true?

1. The hedgers position improves.
2. The hedgers position worsens.
3. The hedgers position sometimes worsens and sometimes improves.
4. The hedgers position stays the same.