3 Financial Assets

Question 1

How to calculate a Forward rate

Answer 1

Forward rate = spot rate × (1 + quote ccy o/n rate)/(1+ base ccy o/n rate)

Note overnight rates are annualised so adjust for time period of forward ( ie divide by 2 for 6 month forward rate)

Question 2

Exchange rate, USD/EUR

What are base and quote currencies?

Answer 2

Convention is base currency /quote currency

Exchange rate is how much of 5he the quote currency you get for 1 of the base currency

Question 3

Whatever does it mean for exchange rate to be going up?

Answer 3

Base currency is strengthening relative to quote

Question 4

3 main types of uk money market instruments

Answer 4

Treasury bills
Certificates of deposits
Commercial papers

Question 5

Treasury bills (uk)

Answer 5

issued weekly by the Debt Management Office (DMO) on behalf of the Treasury (also ad hoc and bilateral)
used for the Government’s short-term borrowing needs.
Typically 1,3 or 6 month. Year max. Day min.
Zero coupon
Sterling denominated

Question 6

Certificates of deposit

Answer 6

product offered by banks and credit unions that provides an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time.
Tradeable on money markets

Question 7

Commercial paper

Answer 7

Corporate equivalent of treasury bill

short term, zero coupon