You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. \[\begin{array} { l c } \text { Portfolio Value } & \$ 1 \text { milion } \\ \text { Portfolio's Beta } & 0.60 \\ \text { Current S\&P500 Value } & 1400 \\ \text { Anticipated SEP500 Value } & 1200 \\ \end{array}\] If the anticipated market value materializes, what will be your expected loss on the portfolio?

A) 14.29% B) 16.67% C) 15.43% D) 8.57% E) 6.42% A) 14.29% B) 16.67% C) 15.43% D) 8.57% E) 6.42%

Consider the following: \[\begin{array} { l l l } \text { Risk-free rate in the United States } & 0.04 / \text { year } \\ \text { Risk-free rate in Australia } & 0.03 / \text { year } \\ \text { Spot exchange rate } & 1.67 \mathrm {~A} \$ / \$ \end{array}\] If the futures market price is 1.63 A$/$, how could you arbitrage?

A) Borrow Australian dollars in Australia, convert them to dollars, lend the proceeds in the United States, and . enter futures positions to purchase Australian dollars at the current futures price. B) Borrow U.S. dollars in the United States, convert them to Australian dollars, lend the proceeds in Australia, . and enter futures positions to sell Australian dollars at the current futures price. C) Borrow U.S. dollars in the United States, invest them in the U.S., and enter futures positions to purchase Australian dollars at the current futures price. D) Borrow Australian dollars in Australia and invest them there, then convert back to U.S. dollars at the spot price. E) There is no arbitrage opportunity. A) Borrow Australian dollars in Australia, convert them to dollars, lend the proceeds in the United States, and . enter futures positions to purchase Australian dollars at the current futures price. B) Borrow U.S. dollars in the United States, convert them to Australian dollars, lend the proceeds in Australia, . and enter futures positions to sell Australian dollars at the current futures price. C) Borrow U.S. dollars in the United States, invest them in the U.S., and enter futures positions to purchase Australian dollars at the current futures price. D) Borrow Australian dollars in Australia and invest them there, then convert back to U.S. dollars at the spot price. E) There is no arbitrage opportunity.

Consider the following: \[\begin{array} { l l } \text { Risk-free rate in the United States } & 0.04 / \text { year } \\ \text { Risk-free rate in Australia } & 0.03 / \text { year } \\ \text { Spot exchange rate } & 1.67 \mathrm { AS } / \$ \end{array}\] If the market futures price is 1.69 A$/$, how could you arbitrage?

A) Borrow Australian dollars in Australia, convert them to dollars, lend the proceeds in the United States, and . enter futures positions to purchase Australian dollars at the current futures price. B) Borrow U.S. dollars in the United States, convert them to Australian dollars, lend the proceeds in Australia, . and enter futures positions to sell Australian dollars at the current futures price. C) Borrow U.S. dollars in the United States, invest them in the U.S., and enter futures positions to purchase Australian dollars at the current futures price. D) Borrow Australian dollars in Australia and invest them there, then convert back to U.S. dollars at the spot price. E) There is no arbitrage opportunity. A) Borrow Australian dollars in Australia, convert them to dollars, lend the proceeds in the United States, and . enter futures positions to purchase Australian dollars at the current futures price. B) Borrow U.S. dollars in the United States, convert them to Australian dollars, lend the proceeds in Australia, . and enter futures positions to sell Australian dollars at the current futures price. C) Borrow U.S. dollars in the United States, invest them in the U.S., and enter futures positions to purchase Australian dollars at the current futures price. D) Borrow Australian dollars in Australia and invest them there, then convert back to U.S. dollars at the spot price. E) There is no arbitrage opportunity.

Exam 23: Futures, Swaps, and Risk Management

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You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. Portfolio Value \ 1 milion Portfolio's Beta 0.60 Current S\&P500 Value 1400 Anticipated SEP500 Value 1200 If the anticipated market value materializes, what will be your expected loss on the portfolio?

(Multiple Choice)

(Multiple Choice)

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Question 53

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Consider the following: Risk-free rate in the United States 0.04/ year Risk-free rate in Australia 0.03/ year Spot exchange rate 1.67\ /\ If the futures market price is 1.63 A$/$, how could you arbitrage?

Let R_US be the annual risk-free rate in the United States, R_J be the risk-free rate in Japan, F be the futures price of $/yen for a 1-year contract, and E the spot exchange rate of $/yen. Which one of the following is true?

In the equation Profits = a + b × ($/£ exchange rate), b is a measure of

The most common short-term interest rate used in the swap market is

Which two indices had the lowest correlation between them during the 2008-2012 period?

Which one of the following stock index futures has a multiplier of $50 times the index value?

If a stock index futures contract is overpriced, you would exploit this situation by

If interest rate parity holds,

Which two indices had the highest correlation between them during the 2008-2012 period?

Consider the following: Risk-free rate in the United States 0.04/ year Risk-free rate in Australia 0.03/ year Spot exchange rate 1.67/\ If the market futures price is 1.69 A$/$, how could you arbitrage?

One reason swaps are desirable is that

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