--%>
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 : Problem on exponential growth rate

    Atlanta Company stock is predicted to follow an exponential growth rate. The relationship among the current stock price P0, future price PT after time T, and continuously compounded rate of the return r, is: PT = P0eγT. The stock doesn’t pay any

    		•
  • Q : What are the different types of

    What are the different types of mathematics found in quantitative finance?

    		•
  • Q : Market for Corporate Bonds Write some

    Write some point regarding Market for Corporate Bonds.

    		•
  • Q : Financial statements The concept of

    The concept of conservatism has been influential in the development of accounting theory and practice.  A major effect of conservatism is that accountants tend to recognize losses but not gains.  For example, when the value of an asset is impaired, it is wri

    		•
  • Q : Who was the first to quantify the idea

    Who was the first to quantify the idea of Brownian motion?

    		•
  • Q : DCF Analysis AB Corp. is in the

    AB Corp. is in the business of making white-board markers. They are computing the potential of investing in some new equipment that will enhance their manufacturing process.  The initial cost of the latest machinery is $470,000 plus a one-time installation cost o

    		•
  • Q : Illustrates the Gordon and Shapiro

    What is the importance and the utility of the given formula: Ke = DIV(1+g)/P + g?

    		•
  • Q : State Transition Management Transition

    Transition Management: It is a financial service accessible to institutional investors who require making significant modifications to their portfolios, like merging, selling, or substantially restructuring them. This procedure can expose investors to

    		•
  • Q : Road King Trucks Project I want to know

    I want to know how much do you charge for doing the project?

    		•
  • Q : Working Capital - Current Assets and

    I do not know the meaning of Working Capital Requirements. I think this should be same to Working Capital (Current Assets – Current Liabilities). There am I right?

    		•