Questions from Business Statistics

Q: What is the purpose of the convexity adjustment made to Eurodollar futures

What is the purpose of the convexity adjustment made to Eurodollar futures rates? Why is the convexity adjustment necessary?

Q: Companies A and B have been offered the following rates per annum

Companies A and B have been offered the following rates per annum on a $20 million five-year loan: Company A requires a floating-rate loan; Company B requires a fixed-rate loan. Design a swap that wil...

Q: Assume that the price of currency A expressed in terms of the

Assume that the price of currency A expressed in terms of the price of currency B follows the process
where rA is the risk-free interest rate in currency A and rB is the risk-fre...

Q: A financial institution has entered into an interest rate swap with company

A financial institution has entered into an interest rate swap with company X. Under the terms of the swap, it receives 4% per annum and pays six-month LIBOR on a principal of $10 million for five yea...

Q: A financial institution has entered into a 10-year currency swap

A financial institution has entered into a 10-year currency swap with company Y. Under the terms of the swap, the financial institution receives interest at 3% per annum in Swiss francs and pays inter...

Q: Companies A and B face the following interest rates (adjusted for

Companies A and B face the following interest rates (adjusted for the differential impact of taxes): Assume that A wants to borrow U.S. dollars at a floating rate of interest and B wants to borrow Can...

Q: Explain what is meant by (a) an ABS and (

Explain what is meant by (a) an ABS and (b) an ABS CDO.

Q: After it hedges its foreign exchange risk using forward contracts, is

After it hedges its foreign exchange risk using forward contracts, is the financial institution’s average spread in Figure 7.11 likely to be greater than or less than 20 basis points...

Q: Describe the profit from the following portfolio: a long forward contract

Describe the profit from the following portfolio: a long forward contract on an asset and a long European put option on the asset with the same maturity as the forward contract and a strike price tha...

Q: ‘‘Nonfinancial companies with high credit risks are the ones that cannot

‘‘Nonfinancial companies with high credit risks are the ones that cannot access fixed-rate markets directly. They are the companies that are most likely to be paying fixed and receiving floating in an...