Chapter 5 & 9

Question 0

______ carry is a term when the price difference btw contracts with two different delivery months equals the full cost of carrying the good from delivery month of 1st contract to the next month.

Answer 0

full carry

Question 1

3 different types of foreign financial exposures to address when deciding to hedge

Answer 1

1. Accounting/Translation
2. Transaction/Contractual
3. Operation/Economic

Question 2

what kind of futures contract is an interest-bearing instrument as the underlying asset or debt obligation?

Answer 2

interest rate futures

Question 3

T-bills, bonds, and Eurodollar futures are examples of ______ futures?

Answer 3

interest rate futures

Question 4

What futures is among the largest & most diverse?

Answer 4

Interest rate futures

Question 5

do interest rate futures include BOTH short-term and long-term products?

Answer 5

yes

Question 6

Name 2 examples of short-term interest rate futures

Answer 6

1. Fed Funds (T-billls)

2. Eurodollars

Question 7

Name 2 interest rate futures that are long-term?

Answer 7

1. T-bonds

2. T-notes

Question 8

Almost all of the activity in US interest rate futures is concentrated on what 2 exchanges?

Answer 8

1. CBOT

2. International Monetary Market (IMM) of CME

Question 9

Which exchange has longer-term interest rate futures?

Answer 9

CBOT

Question 10

Which exchange has short-term interest rate futures? about 1 month - 10 years money market instruments (T-bills, com paper, banker’s accept, CD, Fed funds, short-term collat loans)

Answer 10

CME

Question 11

LIBOR stands for______

Answer 11

London InterBank Offer Rate

Question 12

_____ is the rate at which banks lend funds to other banks in the interbank market? done all electonically and MOST important rate in international finance.

Answer 12

LIBOR

Question 13

_____ deposits are U.S. dollars held in foreign country’s banks or foreign branches of U.S. banks.

Answer 13

Eurodollars

Question 14

CME Group offers 30 year _______. most popular contracts traded.

Answer 14

U.S. Treasury BONDS

Question 15

2, 5, 10 yr ______ also trade on CME GROUP. also very popular is the 10 yr ____ that is traded virtually 24 hrs per day.

Answer 15

U.S. Treasury Notes

Question 16

_______ allows foreign banks the ability to lend DOLLAR loans to foreign importers (buyers) without incurring currency exchange risks.

Answer 16

Eurodollars

Question 17

_______ - overnight bank borrowings. are bank reserves at Federal Reserve Banks due to reserve requirements

Answer 17

federal funds

Question 18

the interest rate loans are made between banks from Fed reserves, fed funds, are called______. not collateralized = unsecured interbank loans.

Answer 18

federal funds rate

Question 19

what futures derives their value from changes in the yield on T-bills that basically reflect “pure or risk-free” interest rate movements?

Answer 19

Treasury Bill Futures

Question 20

interest rate futures/swaps that are denominated on the EURO instead of dollars use _____ as reference rate. 3-month euro term deposits, traded on EUREX, trading thru xpresstrade

Answer 20

EURIBOR (European Interbank Offered Rate)

Question 21

Germany or Swiss’ notional short, medium, long-term debt instrument, different terms, 6% coupon on Euro Schatz, Euro Bobl, and Euro Bund. 4% on Euro Buxi futures.

Answer 21

Euro Bund Futures

Question 22

_____ UK-government issued debt securities, bonds. issued by UK Debt Management Office (DMO)

Answer 22

Gilts

Question 23

___ defined as price of money. affect individuals & businesses (mortgage, credit cards, savings account, coupon rates).

Determined by Supply & Demand, feds influence thru monetary policy… key indicators of country’s economic health.

Answer 23

Interest rates

Question 24

1. Ease of Short Selling
2. Large Supply of underlying good
3. Nonseasonal production
4. Nonseasonal Consumption
5. Ease of Storage

5 factors that promote ______

Answer 24

full carry (interest rate futures fits this bill)

Question 25

What INDEX futures contracts is the most widely traded in U.S.

Answer 25

S&P 500

Question 26

T or F. Stock indexes can’t be traded directly, so futures based on them are primary way of trading stock indexes?

Answer 26

True

Question 27

____ is a theory that states exchange-adjusted prices on SAME good must be within transaction costs and equal globally.

Answer 27

Law of One Price

Question 28

what kind of arbitrage exists when 1 currency sells at different prices in 2 different markets (countries)

Answer 28

Geographic Arbitrage

Question 29

_____rate is exchange rate btw 2 currencies trades that tie in a 3rd currency relatively. Example: dollar to Euro, dollar to Pound.

Answer 29

cross-rate

Question 30

_____ parity is the notion that the ratio btw domestic & foreign prices should equal the equilibrium exchange rate btw domestic & foreign currencies. In other words, price should be the same in different countries for the SAME good due to exchange rate.

Answer 30

purchasing power parity

Question 31

_____ effect states that nominal % differential btw 2 countries should = inflation differential btw the these countries. (interest rates affected by inflation)

Answer 31

Fisher Effect

Question 32

_______ Fisher Effect states that % differences btw 2 countries should be unbiased predictor of future changes in spot rates.

Answer 32

International

Question 33

____ is a condition where % differences btw 2 countries is approx = to forward differences btw 2 currencies, and thus can’t ‘enjoy’ arbitrage.

Answer 33

Interest-rate parity

Question 34

true or false. forward rate is an unbiased predictor of FUTURE SPOT rate.

Answer 34

True

Question 35

1. Balance of Payments
2. Fixed Exchange Rates
3. Other Exchange Rates (free float, dirty float, pegged, joint)

all of these are determinants of _______ Rates

Answer 35

Foreign Exchange

Question 36

Deficit BOP =

Answer 36

imports > exports (spends more than makes)

Question 37

Surplus BOP

Answer 37

Exports > Imports (makes more than spends)