James Johnson bought a coupon bond yielding 4.7% for $1,000. Assuming that the price drops to $976 when yield increases to 4.71%, what is the PVBP of the bond.
A. $26.
B. $76.
C. $870.
D. $976.
What is a difference between currency swaps and interest rate swaps?
A. Currency swaps do not require the exchange of notional principal on maturity.
B. Currency swaps allow banks and customers to obtain the risk/reward profile of long-term interest rates without having to use long-term funding.
C. Currency swaps are OTC derivative contracts.
D. Currency swaps generate foreign exchange rate risk in addition to interest rate risk.
Unico Bank, concerned with managing the risk of its trading strategies, wants to implement the trading strategy that exposes the bank to the lowest market risk. Which one of the following four strategies should Unico take to limit its risk exposure?
A. A matched book strategy that allows the trading desk to match all customer positions immediately with an equal and opposite position by trading internally or with another bank.
B. A covering strategy that manages positions in the product by executing covering deals or hedging deal at the discretion of the trading des.
C. A passive hedging strategy that allows the traders to price transactions with customers and other banks, at the relevant bid price on the market.
D. A market-maker strategy that allows the traders to quote a buy and sell price to customers and other banks and to trade at the relevant price on the sell side of the market.
Which one of the following four interest rate related yield curves is used to revalue loan and deposit positions in banks?
A. Derivative
B. Bond
C. Cash
D. Basis
Which one of the following statements describes Macauley's duration?
A. The change in value of a bond when yields increase by 1 basis point.
B. The weighted average life of the bond payments.
C. The present value of the future cash flows of a bond calculated at a yield equal to 1%.
D. The percentage change in a bond price when the yields change by 1%.
In early March, an energy trader takes a long position in natural gas futures for delivery in June, and hedges this exposure by taking a position in futures for July delivery. These trades were executed on the expectation that over time, the relative prices of the June and July contracts will come into alignment, the movement in these two contracts will largely mirror each other, and as a result of this, the net exposure is minimized and the position is protected against absolute price movements. However, if the two relative prices do not come into alignment with each other due to the scarcity of any of the two traded contracts in the futures market, the trader is likely to become exposed to the
A. Location basis
B. Quality basis
C. Product basis
D. Calendar spreads basis
An asset manager just bought a coupon paying bond with principal value $100,000 for $87,000 with a current yield of 4.7%. He assumes that if the yields change to 5.7% the price of the bond would be $84,500. Based on this assumption what is the modified duration of the bond?
A. 2,507.
B. 97.12.
C. 2.97.
D. 2.88.
James Johnson has a $1 million long position in ThetaGroup with a VaR of 0.3 million, and $1 million long position in VolgaCorp with a VaR of 0.4 million. The returns of the two companies have zero correlation. What is the portfolio VaR?
A. $1 million
B. $0.7 million
C. $0.5 million
D. $0.4 million
Arnold Wu owns a floating rate bond. He is concerned that the rates may fall in the future decreasing his payment amount. Which of the following instruments should he buy to hedge against the fall in interest rates?
A. Interest rate floor
B. Interest rate cap
C. Index amortizing swap
D. Interest rate swap that receives floating and pays fixed
Oliver McCarthy owns a portfolio of bonds. Which of the following choices equals the modified duration of Oliver's portfolio?
A. Minimum of the modified durations of the component bonds
B. Value-weighted average modified duration of the component bonds
C. Coupon-weighted average modified duration of the component bonds
D. Maximum of the modified durations of component bonds
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