Question
On Oct 2020, a banker commits to buy a pool of mortgaged securities on March 2021 at set price , and hoping to resell them
On Oct 2020, a banker commits to buy a pool of mortgaged securities on March 2021 at set price , and hoping to resell them in market at a higher price. The banker could take a profit if the value of mortgage pool soars by March 2021. The price of mortgage securities increases if their interest rates fall(and vice versa). To hedge his exposure to the downside risk(loss), the banker takes a position in interest futures that will produce a gain in the futures market if rates do rise. He enters into the futures position for 6 months that settles at 99.46. How much gain(%) the futures position will produce if the floating rate is 4.5% in six month from now?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started