Lecture 3 - Interest rates

Question 1

Repo rates

Answer 1

Repurchase agreement is an agreement where a financial institution
that owns securities agrees to sell them for X and buy them bank in
the future (usually the next day) for a slightly higher price, Y

Question 2

OIS Rate

Answer 2

An overnight indexed swap is a swap where a fixed rate for a period (e.g., 3 months) is exchanged for the geometric average of overnight rates.

Question 3

Par yield

Answer 3

The par yield for a certain maturity is the coupon rate that causes the bond price to equal its face value.

Question 4

Forward rates

Answer 4

The forward rate is the future zero rate implied by today’s term structure of interest rates

Question 5

Fwd Rate > Zero Rate > Par Yield

Answer 5

Upward sloping yield curve

Question 6

Par Yield > Zero Rate > Fwd Rate

Answer 6

Downward sloping yield curve

Question 7

An OTC agreement that a certain
rate will apply to a certain principal during a certain future time period.

Answer 7

Forward rate agreement

Question 8

A measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates

Answer 8

Duration

Question 9

Measures the change in the value of a bond in response to a change in 100-basis-point (1%) change in interest rates.

Answer 9

Modified duration

Question 10

Forward rates equal expected future zero rates

Answer 10

Expectations Theory

Question 11

Short, medium, and long rates determined
independently of each other

Answer 11

Market Segmentation