Q1. Money market interest on the Danish Krone on 23 April were:
1 month 2.1
3 months 2.1
6months 2.15
1 year 2.25
Calculate the forward forward interest rates:
-for 2 months, 1 month ahead
-for 3 months, 3 months ahead
-for 6 months, 6 months ahead
-for 9 months, 3 months ahead
Q2. You are given the following information:
Spot Euro rates on 3 months money 2.05%
Spot US interest on 3 money 1.17%
$/Euro exchange rate: $1.1825= Euro 1
(a) -calculate the fair price of euro futures contract with delivery date 3 months ahead
(b) -why might the actual futures price differ from the fair price
(c) -describe the arbitrage strategy which would produce a profit if the actual futures price was (a) above the fair price (b) below the fair price
(d) -allow for transaction cost of 2% of the value of the contract and calculate no arbitrage band for the futures price
Q3 Assume at the end of March 2005, 3 months Euribor futures offered by Eurex stood at:
Jun 98.02 Sep 97.98 Dec 97.90
What term would you use to describe this relationship between futures contract of different periods? What is the opposite situation? What might the above set of figures imply that hedgers were using short term interest rate futures to achieve?
Q4. You are given the following figures for the end of September:
-Spot dirty price of cheapest to deliver long gilt =£97.25
-Price factor of cheapest to deliver long gilt =0.9815625
-Sterling money market interest for 3 months = 4.29%
-Coupon rate on the cheapest to deliver long gilt =8%
Calculate the fair futures price for December long gilt contract.