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17 Cards in this Set
- Front
- Back
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17.68A - A deliverable forward contract on an asset specifies that the long (buyer) will...
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Pay a certain amount at a future date to the short, who will deliver a certain amount of the asset
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17.68A - Default risk in a forward contract is the risk that the other party to the contract will...
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Not perform at settlement, since no money typically exchanges hands at the initiation of the contract
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17.68B - A forward contract with cash settlement does not require
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Delivery of the underyling asset, but a cash payment at settlement between counterparties, based on contract price and market price of the asset at settlement
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17.68B - Early termination of a forward contract can be accomplished by...
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Entering into a new forward contract with the opposite position, at the then-current expected forward price.
This early termination will fix the p/l at settlement. If new forward is with a different counterparty than original, there is credit or default risk to consider, since one of the two counterparties may fail to honor its obligation under the forward contract |
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17.68C - An end user of a forward contract is most often a
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Corporation hedging an existing risk
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17.68C - What is the role of forward dealers, large banks, and brokerages in forward contracts?
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Orginate contracts and take long/short position with a spread in pricing to compensate them for actual costs, bearing default risk, and any unhedged price risk they must bear.
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17.68D - An equity forward contract may be created based on? (3)
* And is used to... Equity forward contracts can be written on a _________ basis (including dividends), but are typically based solely on _______ |
A single stock, customized portfolio, or an equity index.
**And is used to hedge the risk of equity prices at some future date Total Return / typically based solely on index value |
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17.68D - Index forwards settle in ______ based on the ______ amount and the _______ _______ between the index value in the contract and the _____________
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CASH
NOTIONAL PERCENTAGE DIFFERENCE ACTUAL INDEX LEVEL AT SETTLEMENT |
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17.68D - Forward contracts on which bonds are the underlying asset may be quoted in terms of...
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The discount on zero-coupon bonds (ex T-Bills) or in terms of the YTM on coupon bonds.
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17.68D - Forwards of corporate bonds must contain special provisions to deal with possibility....
Forward contracts may be written on... |
Of default as well as with any call or conversion features.
*** Portfolios /Indexes made up of bonds. |
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17.68e - Eurodollar time deposits are..
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USD-denominated short-term unsecured loans to large money-center banks outside the united states
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17.68E - LIBOR is?
Is quoted for? 17.68E - Euribor is the equivalent for short-term... |
The London Interbank Offered Rate (LIBOR) is an internaitonal reference rate for Eurodollar deposits and is quoted for 30, 60, 180 or 360 day (1-year) terms
*Euro -denominated bank deposits (loans to banks) |
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17.68E - Euribor is the equivalent for short-term...
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Euribor is the equivalent for short-term...euro-denominated bank deposits (loans to banks)
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17.68E - For both LIBOR and Euribor rate are expressed as
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**Rates are expessed as annual rate and actual interest is based on the loan term as a proportion of a 360-day year.
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17.68F - Forward rate agreements (FRAs) serve to hedge the...
In what case does Long / Short receive payment in FRA's?? |
(FRAs) serve to hedge the... Uncertainty about short-term rates (ex: 30 or 90 day LIBOR) that will preval in the future. If rates rise, the long reveives a payment at settlement. The short receives a payment if specified rate falls to a level BELOW the contract rate.
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17.68G - [FRAs] To calculate the payment to long at settlement:
a. The numerator is the difference between... b. the denominator is to discount... c. full equation |
a. The numerator is the diff. between the rate on a loan for specified period at the forward contract rate and rate at settlement.
b. The denominator is to discount this interest differential back to the settlement date at the market rate at settlement. c. notional principal amount x { (reference rate at settlement - FRA rate) x [days in loan term / 360] / 1 + reference rate at settlement x [days in loan term/360]} |
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17.68H - Currency forward contracts specify that one party will deliver
Under cash settlement, payment is.. |
a certain amount of one currency at settlement date in exchange for a certain amount of another currency.
*made at settlement based on the difference between the exchange rate in contract and the market exchange rate at the settlement date. |
