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What are the two ways to use call and put options on T-bonds to generate positive cash flows when interest rates decline?
How can the pension fund manager use options to hedge that interest rate risk exposure?
A bank purchases a six-month $1 million Eurodollar deposit at an interest rate of 6.5 percent per year.
Should the bank go short or long on the futures contracts to establish the correct macrohedge?
If interest rate changes in the spot market exactly match those in the futures market, what type of futures position should the mutual fund create?
If the spot and futures interest rates move together, how many futures contracts must Village Bank sell to fully hedge the balance sheet?
How far must interest rates move before the payoff on the hedge will exactly offset the cost of placing the hedge?
How much must interest rates move against the hedge for the increased value of the bank to offset the cost of the hedge?
What is the modified duration of the T-bonds if the current level of interest rates is 10 percent?
The current price of a deliverable T-bond is 103-08 per $100 of face value, its duration is nine years, and its yield to maturity is 7.68 percent.
If the finance company is going to be the swap buyer and the insurance company the swap seller, what is an example of a feasible swap?
In the 1980s, many thrifts that failed had made loans to oil companies located in Louisiana, Texas, and Oklahoma.
What factors have caused the changes in operating performance and market value for this firm?
Your company sponsors a 401(k) plan into which you deposit 12 percent of your $60,000 annual income.
How can interest rate risk adversely affect the economic or market value of an FI?
A money market mutual fund bought $1,000,000 of twoyear Treasury notes six months ago.
If a bank invested $50 million in a two-year asset paying 10 percent interest per year and simultaneously issued a $50 million one-year liability.
Suppose you purchase a 10-year AAA-rated Swiss bond for par that is paying an annual coupon of 8 percent and has a face value of 1,000 Swiss francs.
In what ways does the credit analysis of a mid-market borrower differ from that of a small-business borrower?
Explain how modern portfolio theory can be applied to lower the credit risk of an FI's portfolio.
If her bank requires a gross debt service ratio of no more than 30 percent, will Jane be able to obtain the mortgage?
The balance in the firm's cash account was $950,000 at the beginning of 2012 and $1,025,000 at the end of the year.
The income statement shows that net income is $315 million and depreciation expense is $46 million.
Calculate and interpret the Altman's Z-score for this firm.
Countrybank offers one-year loans with a stated rate of 10 percent but requires a compensating balance of 10 percent.