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发表于 2011-7-11 19:56 | 只看该作者

risk management Qs

management, potential, interest

1, Consider a plain vanilla interest rate swap with two months to go before the next payment. Six months after that, the swap will have its final payment.

The present value of the floating payments is $1.0222mm, and the present value of the fixed payments is $1.0210mm.

Which party assumes credit risk?

2, Is the current credit risk equal to the present value of the potential credit risk?
-- just updated.

Edited 2 time(s). Last edit at Friday, May 27, 2011 at 03:54PM by deriv108.

Roflnadal

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发表于 2011-7-11 19:56 | 只看该作者

1.) Value Receiving - Value Paying.

Credit risk to fixed rate payer.

2.) No.

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strikethree

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发表于 2011-7-11 19:56 | 只看该作者

3. What is difference between centralized and decentralized risk management systems?
The advantages and disadvantages of each?

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PalacioHill

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发表于 2011-7-11 19:56 | 只看该作者

4. You are French and own a portfolio of U.S. stocks worth $1 million. The current spot and one-month forward exchange rates are 1 euro per $. Interest rates are equal in both countries. You are worried that the results of U.S. elections could lead to a strong depreciation of the dollar and you decide to sell forward $1 million to hedge currency risk. A week later, your U.S. stock portfolio has gone up to $1.02 million, and the spot and forward exchange rates are now 0.95 euro per $.

a) If the portfolio had not been hedged, what is the return in euros?
b) If the portfolio had been hedged as described, what is the return in euros?

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canadiananalyst

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发表于 2011-7-11 19:56 | 只看该作者

if it is a forward , you should list interest rate

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jmh530

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发表于 2011-7-11 19:56 | 只看该作者

4a -3.1%
4b 1.9%

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lcai

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发表于 2011-7-11 19:56 | 只看该作者

I think the reason they directly use forward price is that Interest rates are equal in both countries and a week time .

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bodhisattva

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发表于 2011-7-11 19:56 | 只看该作者

bannisja Wrote:
-------------------------------------------------------
> yeah you guys are right- it's 1.9%... whoops, that
> extra .02mm you didn't hedge out at the 1/1.

1.9% is very close to 2.0%...could be good enough for an item set question, or at least a quick check.

Any shortcut to get the hedged return 1.9%?

Edited 1 time(s). Last edit at Friday, May 27, 2011 at 07:51PM by deriv108.

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liangfeng