--%>
Assignment Help - homework help

Problem on HIBOR

Below are the three-month HIBOR and three-year EFN futures (that is, Exchange Fund Note) prices for the September 2010 contracts.

a) Find out the HIBOR in three-months for settling the future contract utilizing the quotation on August 16.

b) Assume an investor sold one contract of three-month HIBOR futures on August 16 and closed it out on the August 20. Compute the profit or loss of this investor.

c) Assume an investor bought one contract of three-year EFN futures on August 16 and closed it out on August 20. What would be the gain or loss of this investor?

E

Expert

Verified

a) HIBOR in three months for settling the futures will be determined by multiplying the quoted price on AUG 16 with the minimum fluctuation and multiplying by 100.

The minimum fluctuation is calculated based on the contract price multiplied by the basis point for each quarter.

The contract size is HK$ 5000000 and the basis point is .0001
Hence minimum fluctuation will be HK$ 5000000x.0001x0.25= HK$125

Hence the HIBOR rate will be 99.670 x.0001x0.25=.00249175+ 99.67= 99.6725

b) Each contract will be $5000000. If he sells at 3 months HIBOR then the value would be 99.6725 (5000000x.0001x0.25) X 100 = $ 1245906.250

Further if he closes then on Aug 20, at 99.74 then the value would be 125x99.74x100=$1246750.000, he will gain $ 843.75

c) The size of each three year EFN futures is $1000000 with a coupon of 6 %. The investor has bought EFN for a value of $ 1000000 x114.31= $114310000 and he has closed this on Aug 20th at 114.38 giving him a value of $1000000x114.38=$ 114383000.

He has gained $ 73000 ( $114383000 – $114310000)

   Related Questions in Corporate Finance

  • Q : Explain Cost of capital aspect Cost of

    Cost of capital aspect: Estimation of WCR is beneficial from the point of view of cost of capital too. A sound working capital position is beneficial from the point of view of both owners and lenders of the company. A sufficiently positive position me

    		•
  • Q : Selling or purchasing problem Atlas

    Atlas Realty Company is interested in buying a house and renting it out for $12,000 a year, collecting the rent in advance each year. This will depreciate the house over 25 years; however sell it after 15 years at twice its purchase price. The maintenance expenditures

    		•
  • Q : Does the book value of the debt

    Does the book value of the debt all the time coincide with its market value?

    		•
  • Q : Problem on rules of the International

    RainFlower Trading Limited is a wholesaler of electronic calculators in Hong Kong. It has been importing goods from a Philippine manufacturer for eight years. The Philippine manufacturer had accepted payments in advance in the past. Recently, because of political turm

    		•
  • Q : Commercial bank problems For an

    For an enhanced understanding of banking industry, it is significant to look at the atmosphere in which commercial banks operate. Production growth and globalization are two main forces reshaping the banking industry nowadays. The following two questions are associate

    		•
  • Q : CAPM-Project Evaluation and Risk

    UCD Vet Products – a hypothetical publicly traded corporation (UCDV) — is considering investing in a new line of equine DNA analysis technology for race horse breeders. The project will yield the net cash flows listed in the table below. Assume that this p

    		•
  • Q : Why required return cannot computed by

    Why can we not compute the required return (Ke) by the Gordon-Shapiro model [P0 = Div0 (1+g) / (Ke – g)] in place of using the CAPM? As we identify the current dividend (Div0) and the current share price (P0), we can acquire the growth rate of the dividend by th

    		•
  • Q : Shall we use the arithmetic mean or the

    The market risk premium is the difference between the historical return on the stock market and the return on bonds. But how many years does “historical” imply? Shall we use the arithmetic mean or the geometric one?

    		•
  • Q : Who explained market-neutral delta

    Who explained market-neutral delta hedging?

    		•
  • Q : Calculating Super normal profit The

    The case study of an economic analysis is done for Schlumberger, oilfield Service Company.  They are No. 1 in terms of market caps, revenue and employees globally. When any references are used/outside sources (except for Schlumberger's annual reports and financia

    		•