Overview
- This assignment is an individual assignment.
- The Assignment must be submitted only in WORD format via allocated folder on Blackboard.
- Assignments submitted through email will not be accepted.
- Students are advised to make their work clear and well presented. This also includes filling your information on the cover page.
- Students must mention question number clearly in their answer.
- Late submitted assignments will NOT be entertained.
- Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.
- All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.
Assignment Questions
Q.1 On June 17 of a particular year, an American watch dealer decided to
import 100,000 Swiss watches. Each watch costs SF225. The dealer would like
to hedge against a change in the dollar/ Swiss franc exchange rate. The forward
rate was $0.3881. Determine the outcome from the hedge if it was closed on
August 16, when the spot rate was $0.4434. (03)
Q.2 For a $100 million equity swap with semiannual payments and an initial stock index level of 2000, one party pays a fixed rate of 5.5 percent assuming 30 days per month and 360 days in a year. On the first payment date, if the stock index is at 2173, determine the net swap payment, and specify which party makes the payment. (03)
Q.3 Explain how a bank could use a swaption to hedge the possibility that it will enter into a pay floating, receive-fixed swap at a later date. (04)