I don’t see any where in the item set on derivatives (question 7- 13) where it says the payments on the currency swaps should be made semiannually.
The answer calculates the market value of the currency swap, assuming semi annual payments.
The question says the firm executes a 12 month fixed-to-fixed currency swap. So how do we know the payments are semi annual and not quarterly or monthly?
Completely agree blinx, this had me stumped. In fact most of this exam was horrifically worded. The following section refers to “Gloucester” metrics/ratios etc when it is actually Rockport that is the company. I figure this mock may do more harm than good given a cost/benefit analysis on time spent working out what the heck a questionis actually asking.
Ok. Glad everyone is on the same page on this one. I did ok on this mock but got destroyed on Equity and Derivatives, which are usually my strong areas.
On the option question; If the index can move up 15% or down 20% then the size of the up move is 1.15 and the size of the down move should be (1/1.15 = 0.869) but the answer gives the size of the down move as
(1/1.2 = 0.8333).
I think the up and down moves are mutually inconsistent. Am I right?
This Derivatives item set in the PM on the 2013 mock is crazy. I agree with what people said on this item set. It’s like the person making it was just trying to be a prick, and they didn’t even do that good of a job with it b/c the wording is poor. The 2013 mock is a good deal more difficult than the 2014 mocks, excluding this PM Derivatives item set.
What I’ve been doing regarding the BSM option up/down moves is to use whatever is given to you in the problem. If you’re only given the “up move”, determine the “down move” by just taking the inverse of the up move.