TU Wien:Financial Management and Reporting VU (Aussenegg)/2021S - Exam 1

1. A long hedge is based on the expectation of ... prices. a. increasing b. decreasing

2. The difference between the arbitrage free value of the forward and the underlying price decreases the larger ... are. a. storage costs b. dividend payments c. coupon payments d. insurance costs

3. A cash-and-carry arbitrage portfolio includes ... the underlying. a. selling b. buying

4. A reverse cash-and-carry arbitrage portfolio includes ... the underlying. a. buying b. selling

5. A company has a USD floating loan with a remaining maturity of exactly 0.5 years (current date: 2.7.2020; loan expires on 2.1.2021). At the end of every 3-month period it has to pay 3-month USD-Libor plus 300 basis points p.a. as interest (i.e., e.g., the next payment takes place on 2.10.2020, thereafter on 2.1.2021). On 2.7.2020 the current 3-month USD-Libor rate is 0.3% p.a. The CFO is expecting increasing interest rates in the future and wants to hedge relevant future payments against raising interest rates. The following 3-month-Eurodollar Futures prices can be observed (on 2.7.2020): Contract Price Contract Price July 2020 99.7175 Mar 2021 99.80 Aug 2020 99.72 June 2021 99.82 Sep 2020 99.73 Sep 2021 99.825 Oct 2020 99.75 Dec 2021 99.80 Dec 2020 99.77 Mar 2022 99.82 Calculate the net interest payment for the second payment (i.e. interest amount payed on 2.1.2021) in % p.a. (i.e. no nominal value of the loan required) in case the CFO is using 3-months Euribor Futures contracts to hedge against interest rate risk. Note: As usual, distinguish between payment and fixing dates of the floating loan interest rates. As usual, variable loan interest payments are fixed at the beginning and payed at end of the corresponding payment period.

6. Dividend payments in the underlying of stock index futures contracts ... the no-arbitrage stock index futures value. a. increase b. decrease

7. A cash-and-carry arbitrage exists when the fundamental no-arbitrage value of the forward is ... the forward price. a. below b. above

8. A reverse cash-and-carry arbitrage profit is ... with additional storage costs. a. reduced b. increased

9. The basis is lowest ... . a. at maturity of a forward contract b. before maturity of a forward contract

10. A short bond futures position generates a ... when interest rates are increasing. a. loss b. profit

11. 1 barrel of heating oil is trading on the spot market at $60. The heating oil futures contract with a delivery in 12 months (size of 1 contract: 42,000 US Gallons = 1,000 Barrel) is trading at $63. The financing costs for an immediate purchase in the spot market are 0.5% p.a. An immediate purchase of heating oil in the spot market causes storage and insurance costs of 2% p.a. of the commodity value, payable at the end of the 12 months period (i.e. at t=T). The convenience value of holding the underlying (heating oil) is zero (i.e. is not relevant in this example). Insert your answer to the questions below: (a) Calculate the arbitrage profit for 1 barrel of heating oil (3 points). (b) Which positions should in the above case an arbitrage portfolio for 1 heating oil futures contract contain (8 points)?

12. A stock portfolio consists of the following (German) stocks: Company Beta Market value in the portfolio BMW 1.1 €2 Mio Siemens 0.9 €3 Mio (a) Which futures contract should be used to hedge this portfolio against a market value decrease? Text answer required (2 points). (b) Would the hedge quality be good. Insert as text answer Yes or No (2 points).

13. Main contract months of stock index futures are from the quarterly cycle ... . a. July b. June c. October d. November e. December f. January g. September h. March i. May

14. A long hedge requires a ... on the forward market. a. long position b. short position

15. Higher transaction costs lead to ... swings in the basis. a. larger b. smaller

16. The USD price is quoted in ... . a. € per USD b. USD per €

17. The basis of stock index futures contracts is positive when dividend payments are ... than funding costs until maturity of the futures contract. a. larger b. smaller

18. Reasons why forward prices can be below spot market prices are: ... a. storage costs b. financing costs c. insurance costs d. dividends e. coupons

19. An investor expects increasing US stock prices and has therefore entered a long position of 5 contracts of the (normal, i.e. not the E-mini) S&P500 stock index futures contract traded on the CME (expiration: June 20xx) at a price of 4100.00 (trading day 0 (t = 0)). The settlement price is 4000.00 on trading day 1 (t = 1) and 4170.00 on trading day 2 (t = 2). The following margin requirements apply: initial margin = $60,000 per contract, maintenance margin = $50,000 per contract In case of a margin call, the margin account has to be refilled up to the initial margin. No withdrawals are taking place in case the margin account balance is above the initial margin. Determine the margin account balance of the investor (for the long position of 5 contracts) over these 2 trading days and insert your answers for the following tasks and questions (insert only numbers): (a) Calculate the margin account balance for t=0: (b) Calculate the change in the margin account balance from t=0 to t=1 (before considering any margin call payment) : (c) Is there a margin call at t=1? Insert the variation margin (i.e. the margin call payment). If there is no margin call, insert 0. (d) Insert the margin account balance for t=1 here (including any margin call payment, if any): (e) Calculate the change in the margin account balance from t=1 to t=2 (not considering any margin call payment): (f) Is there a margin call at t=2? Insert the variation margin (i.e. the margin call payment). If there is no margin call, insert 0. (g) Insert the margin account balance for t=2 here (including any margin call payment, if any):

20. The futures price of a 3-months money market futures contains a ... . a. 3-month forward rate b. 3-months futures rate c. 1-month futures rate d. 6-month futures rate

21. A fund manager plans to invest in early September 2021 coupon payments of €10 Mio she receives at the end of August 2021 in German government bonds with a duration of 2.0 years. The fund manager expects until early September 2021 a drop in interest rates and wants to secure the current price level via futures contracts. Assume that the relevant current interest rate level is zero. Answer the following questions: (a) Which contract should she choose? Select a futures contract from the list below and insert in the field the number behind the selected futures contract (1 point): Buxl Futures: 1 Bund Futures: 2 Bobl Futures: 3 Schatz Futures: 4 (b) Which sign should the futures position have? Select from the list below and insert in the field the number behind the selected sign (i.e. long or short) (1 point)? long: 1 short: 2 (c) How many contracts are necessary, when die cheapest to deliver bond has the following characteristics (2 points): Price: 102.70, Conversion factor: 0.926665, Modified Duration: 2.2

22. The forward purchase of USD can synthetically be replicated with a portfolio consisting of ... . a. USD zero bond short b. USD zero bond long c. € zero bond short d. € zero bond long

23. A cash-and-carry arbitrage portfolio includes ... the forward. a. selling b. buying