Track & Error Flashcards
John buys a Eurodollar futures contract at 95.00 and sells it the same day at 95.04.
What’s the profit made by John?
(95.04 - 95) * $2,500 = $100 (for 4 basis points)
Basis Point (BP) Value of a Eurodollar futures contract is $25. This’s because a 1% annual (360) interest rate move leads to a 0.25% impact on the actual dollar value of the Eurodollar futures contract as the underlying security is a $1,000,000, 90-day LIBOR deposit.
Based on the cotnract value of $1 million, a 1% change in interest rate will lead to 0.25% * $1 million = $2,500 change.
So the change per basis point (0.01%) = $2500/100 = $25
John buys S&P 500 Index at 3,500 points (Day 1). The initial margin is 10% and the maintenance margin is 9%. The value per point is $250.
John deposited the initial margin at the time of taking the position. He also deposited $10,000 and $12,000 on day 2 and day 3, respectively.
The index moved to 3,450 on Day 2, 3,390 on Day 3, and 3,400 on Day 4.
What’s the margin balance at the end of Day 4? Presume that margin calls were issued, if required, and John stopped up the margin balance, if required.
$84,500
Jane has a forex trading account. When should the bank give a warning regarding her initial margin balance?
The warning should be given when the margin balance falls below the initial margin (NOT maintenance margin).
In the US Treasury Futures, the invoice price =
Settlement Price x Conversion Factor (CF) + Accrued Interest
The price quote for 2-year T-note Futures is in terms of ____
percent of par to 1/4 to 1/32nd of 1% of par (US$15.625 rounded up to nearest cent)
The Stop Order trigger condition can be defined by ____
Stop Series
Stop Price
Stop Price Reference Type
Stock Price Condition
SGX-DC provides clearing for which of the following trades?
A. OTC commodity trades registered via the SGX OTC Trade Registration Platform
B. Products listed on SGX-DT
C. OTC financial derivatives trades registered via industry-used trade registration system.
D. All of the above
D
John is worried that the fuel prices may rise significantly once the economy picks up.
Currently, he buys crude oil at $70 per barrel (the spot price) and has contracted to sell to his customers at $73 per barrel over the next 6 months.
The 6-month crude oil futures contracts are trading at $69 per barrel.
If John buys crude oil futures at $69, and the spot and futures prices after 6 months are $67 and $68, he will make _____ per barrel net.
If he buys the contract at $69 and the futures price falls to $68, he will lose $1 per barrel in the futures trade.
However, his profit in the cash market will increase to $73 - $67 = $6 per barrel.
Therefore, he will make $5 per barrel on a net basis.
The GBP/SGD spot rate is 1.865. The 1-year interest rates for SGD and GBP are 3% and 1% respectively.
What’s the 1-year (360 days) outright GBP/SGD rate?
1-year outright GBP/SGD = 1.865 (Spot Rate) * (1+3%)/(1+1%) = 1.9019
Countery Currency: SGD
Base Currency: GBP
Jane thinks that S$ is going to appreciate against the USD over the next 6 months. She should ____
A. Selling bonds she owned
B. Short-selling bond calls
C. Overweight on interest-sensitive stocks
Go overweight on interest-sensitive stocks
If S$ is expected to appreciate, domestic interest rates are likely to fall, bond prices rise. Therefore, selling bonds or short-selling bond calls is not an appropriate strategy.
Compared to a market weighted index, an equally-weighted index comprising of the same stocks will always have a ____ exposure to smaller market cap stocks and ___ exposure to large-cap stocks
Greater
Lesser
There’s ____ uptick rule for short-selling Equity Index Futures.
NO
Borrowing shares is ____ allowed in the case of short-selling Equity Index Futures.
NOT allowed
The S&P/Case-Shiller Home Price Index is a series of indices representing _____ different metropolitan statistical areas.
10
What are the SGX-DT products eligible for mutual offset with CME?
Nikkei 225 Index Futures (NK)
USD Nikkei 225 Index Futures (NU)
SGX FTSE Emerging Market Index Futures (FEM)
SGX FTSE China H50 Index Futures (FCH)
If the contract interest rate for a 3-month Eurodollar futures contract is 2.5% per annum, what is the contract IMM Index?
100 - 2.5 = 97.5
John takes a clendar spread position by selling 1,000 June 2020/September 2020 Eurodollar spread.
The June 2020 contract was quoted at 98.5 and the September 2020 was quoted at 98.2 at the time of taking the position.
At the time of closing the position after 2 weeks, the quotes were 98.8 and 97.9.
What’s the payoff for John?
John selling 1,000 June 2020 at 98.5 and close by buy it at 98.8 (a loss of 30 basis points)
The loss = (98.9-98.5) * 100* 1,000 * $25 = $750,000
John bought September 2020 at 98.2 and sell at 97.9
The loss = (98.2-97.7) * 100 * 1,000 * 25 = $750,000
Tottal loss = $750,000 + $750,000 = $1.5 million.
The spread widened from 30 basis points (98.5-98.2) to 90 basis points (98.8-97.7).
The steepening of the curve resulted in a loss in the short calendar spread position.
Calculate the number of contracts required for a delta-neutral hedge of the interest rate on a 270-day loan for US$10 million using Eurodollar futures.
The interest payment is due in 270 days. The prevailing interest rate is equal to 5%.
Assume that the interest rate on the loan is correlated one to one with the Eurodollar rate.
Basis point value (BPV) of the $10 million, 270 day loan = ($10 million x (270/360)) * 0.01% = $750
Discounted value of the BPV = $750 / (1+5%*270/360) = $722.9
BPV of a Eurodollar futures contract = $25
Therefore the number of contracts required = $722.9 / $25 = 28.92 or 29 contracts
ABC Limited expects to borrow $10 million for 2 years at 3-month LIBOR fixed premium in March 2020.
The premium is reset quarterly. ABC wants to use Eurodollar futures for hedging.
For hedging purpose, the loan is broken into 8 quarterly strips with 1st 90-days locked in.
How can ABC hedge against interest rate increases over 8 quarterly loan reset dates if it expects the yield curve to steepen?
of contracts to hedge = BPV of loan (7 quarters * 90 = 630 days) / contract size = $1,750 / 25 = 70
BPV of loan = $10,000,000 * (630 days / 360) x 0.01% = $1,750
So ABC should sell 70 contracts.
If ABC expects the yield curve to STEEPEN, it should stack the short hedge in the DISTANT futures (December 2021 contract) because short-term yields are expected to decline relative to long-term yields.
Eurodollars futures price will move in the opposite direction.
If ABC will be borrowing money, it must _____ Eurodollar futures to hedge against any ___ in interest rates.
Sell
increase
Jane hedges her equity portoflio for 3 months by short-selling S&P500 futures at 3,300 (value of each point being $250).
The spot prices at the time of hedging and after 3 months are 3,310 and 3,360 respectively.
The futures price after 3 months is 3,355. The value of the stock portfolio at the time of initiating the hedge was USD 10 million.
The beta of stock portfolio is 2.00.
Ignoring dividend payout on the S&P 500 index and transaction costs, what is the overall value of Jane’s portfolio net of the loss in the futures contract hedge?
of Contracts required for the hedge = ($10 million / (3,300 * 250)) * 2 = 24 contracts
The loss in the short position = 24* $250 * (3,355 - 3,300) = $330,000
The gain in the portfolio = ((3,360-3,310)/3,310)100)2 = 3.021%
Therefore, the value of the portoflio at the end of 3 months = (1+3.021%) * $10 million = $10,302,100
Net of the heding loss, the portoflio value = $10,302,100 - $330,000 = $9,972,100
A trader buys a calendar spread of futures contracts and the long-term interest rates rise more than the short-term interest rates.
He will ____ on the nearer leg and _____ on the further leg
If the long-term interest rates rise more than the short-term interest rate, the price of long-term contract dropped more than the short-term contract
Calendar spread is composed by buy short-term contract + short long-term contract
Suffer a loss on the nearer leg and make a profit on the further leg
The TED spread is used as an indicator of _____ because U.S. T-bills are considered risk free, while the rate associated with the Eurodollar futures reflects _____
Credit risk
the credit ratings of corporate borrowers
In the 130/30 long-short strategy used by hedge fund mangers ______
Outperformers in the portfolio are 130% of the AUM (Long)
Underperformers in the portfolio are 30% of the AUM (Short)