The spot rate exchange rate for Andromedan Pixels (ANP) is 3.00ANP/$. If the risk-free rate of return in Andromeda is 20% per annum while that in the U.S. is 3%, then what amount of U.S. dollars should you be able to convert 3,000,000 ANP into 1-year from now if you choose to begin hedging today?
65.You have entered into a FRA with a notional amount of $100,000,000 which says that if 1-year LIBOR is greater than 5% then the bank will pay you and vice versa if the rate is less than 5%. At the end of the contract you find that 1-year LIBOR is 4.5%. What is the appropriate cash flow?
a.the bank pays you $500,000
b.you pay the bank $500,000
c.the bank pays you 478,469
d.you pay the bank 478,469
66.You are looking to hedge a position and you require that the hedge that you take on be extremely liquid. Therefore you
a.look to the forward market to hedge.
b.look to the futures market to hedge.
c.both of the above are extremely liquid
d.none of the above are very liquid
67.You are looking at the open interest on a futures contract and notice that there are 500 contracts open. If none of the holders of these contracts are willing to take delivery then what is the minimum number of contracts that must be bought or sold by the expiration date of the contract?
68.Which of the following assets would probably not lend itself to a futures contract?
69.You have a long futures position on an asset with a settlement price of $30.00 and a contract expiration date of 6-months from now. If the settlement price of the contact is $30.08 tomorrow, then what cash flow will take place if you assume that the initial margin was zero?
a.all cash settlements will take place 6-months from now
b.you will receive $.08 per contract
c.you will pay $.08 per contract
d.there is not enough information to determine
70.You initially entered into 6 long pork belly positions in the futures market. You subsequently went long another 3 contracts and then went short 4 contracts. Which of the following is correct? Assume that all of the contracts have the same settlement price and settlement date.
a.if you do nothing more then you must take delivery on 5 pork belly contracts
b.if you do nothing more then you must deliver 5 pork belly contracts
c.if you do nothing more then you must take delivery on 9 pork belly contracts
d.if you do nothing more then you must deliver 4 pork belly contracts
71.The basis on a 1-year futures contract is 52 points. If spot prices do not move and the risk-free term structure of interest rates remains flat and also does not move, then what should be the basis 1-week before expiration?
72.You are bidding on a contract in a foreign currency and you are not sure if you will win the bid. However, the analysis in your bid will be flawed if the foreign currency exchange rate changes between now and when you know whether you have won the contract. The best course of action to hedge your position is
a.long a currency futures contract.
b.short a currency futures contract.
c.purchase an option to sell foreign currency for your currency.
d.sell an option to sell foreign currency for your currency.
73.Your firm has issued $100,000,000 bonds with a fixed cost of 10% to the firm. In addition, the firm has entered into a contract to pay a bank LIBOR + .5% while the bank pays the firm 8.5%, with both notional amounts also being $100,000,000. What is the total cost to your firm for the $100,000,000 borrowing?
a.LIBOR + 1%
b.LIBOR - 1%
c.LIBOR + 2%
d.LIBOR - 2%
74.The Bell Company has issued floating interest rate bonds whereby Bell pays LIBOR + 2% on $50,000,000 notional value. Bell enters into a swap agreement where Bell receives LIBOR - 3% from a bank but pays 2% to the bank, both also on a $50,000,000 notional value. What is Bell’s net interest cost on the borrowing?
d.LIBOR - 3%
75.You are currently borrowing $100,000,000 based upon a floating rate of LIBOR + 1%. You would like to borrow the same amount with a fixed rate of 7%. Which interest rate swap will achieve that end?
a.receive LIBOR and pay 6%
b.receive (LIBOR +2%) and pay 8%
c.receive (LIBOR +2%) and pay 9%
d.a and b above
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