# Derivatives

Ok here’s what I remember for the derivatives: - For backwardation to occur, nonmonetary benefits has to go up by 0.75 - You had to short gold and go long on the futures contract - Fixed rate on swap was 6.4% -Market Value of swaption was \$117,000 (based on fixed rate of 4.25%…I think you take the fixed rate, multiply it by the sum of the PV factors, and multiply by NP - Futures currency contract rate- just take the spot, divide it by 1+foreign risk free to power of 270/365, and multiply by 1+risk free domestic power 270/365). Did we have to take the inverse of the spot or just the spot? - for swaps, the least likely answer was that the swap market is regulated. Question asked which is least likey about swaps Anybody can remember the rest???

I put a 0.03 gain for one of them I think…

I remember I put that as well. I think you had to calculate the FV of the storage costs for that question or something

What were the rest of choices for the the question about perferrence of swap rate? swap rate is not regulated, have more maturities and what else?

The swaption value only has 120,000 in the answer…it asked the closest. I believe it is answer C. Another one I remember is to long a put on i and short a call on i…

It was either .03 gain or .08. The difference had to be with the storage cost to take delivery. However, couldn’t they have just settled with cash. It was a forward right, not a future. Therefore you didn’t have to subtract the 5% storgae cost. I could be wrong. Does anyone else remember this one?

I think the rest of the options was had more maturity points, terms dicated by counterparties, and not sure about the last one, but pretty sure about swaps being not regulated

3rd strategy = buy floor and short cap to reduce cost if rate is not up much ? +0.75, same here 6.4, same here 117,000, same here tito26 Wrote: ------------------------------------------------------- > Ok here’s what I remember for the derivatives: > > - For backwardation to occur, nonmonetary benefits > has to go up by 0.75 > > - You had to short gold and go long on the futures > contract > > - Fixed rate on swap was 6.4% > > -Market Value of swaption was \$117,000 (based on > fixed rate of 4.25%…I think you take the fixed > rate, multiply it by the sum of the PV factors, > and multiply by NP > > - Futures currency contract rate- just take the > spot, divide it by 1+foreign risk free to power of > 270/365, and multiply by 1+risk free domestic > power 270/365). Did we have to take the inverse of > the spot or just the spot? > > - for swaps, the least likely answer was that the > swap market is regulated. Question asked which is > least likey about swaps > > Anybody can remember the rest???

Are the 117,000 and 120,000 in the options? I remember I picked C which is 120,000.

Yes, swap not being regulated!

Another one about swap spread, I picked something like economic factors…credit risk from counter party is definitely wrong.

I think it was 117,000 as you had to discount the cash flows…

doesnt swap spread take into account counterparty risk?

I believe it is talking about interest swaps, not CDS…

Swap spread is based on libor…so i picked something which related to that. Can’t remember the options…

I do remember 117,000 was part of the answers because I chose it…you simply take the excercise rate and discount it using the sum of the PV factor, and multiply by NP…

finance03 Wrote: ------------------------------------------------------- > doesnt swap spread take into account counterparty > risk? SWAP spread is the spread of the LIBOR based swap rates over treasuries. This is basically the spread between AAA/AA and Risk Free rate. Swap spread is based on creditworthiness of banks in general and is not company specific.

was swap spread that coutnerparty risk does play into account? i thought of what it would cost to do a swap with like bear during their meltdown for ex

the spot was a loss of 0.03 you had to PV the future back, once you subtracted the carry/storage costs I thought it was a loss

A bank is a counterparty though.