Explain the risks of the interest rate swap position

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Reference no: EM131034034 , Length: word count:3400

Current data for pricing and obtaining rates can be found at viww.ft.com under data archive.

1. The asset manager wants to fully hedge the interest rate risk on the bond by using bond futures. Calculate the appropriate number of bond futures that should be sold.

2. Explain the risks of the interest rate swap position and how could it be could be hedged?

3. The asset manager would like to hedge the receipt of 550,000,000 to be received in one years' time from the maturity of the one year interbank deposit. Using current data from www.fl.com, calculate a one year EiS forward rate and explain how it could be used the hedge the currency risk.

4. The asset manager thinks that there is some possibly that the currency markets could move in their favour and so ideally would like some degree of participation in any favourable move, whilst being fully protected against adverse moves. Discuss alternative hedging choices by using options.

5. The interest rate swap countetpany is the same bank to which the asset manager lent $50,000,000 via the USD LIBOR deposit. The asset manager is concerned that a default by the Bank could give rise to substantial credit risk. Discuss how derivatives could be used to hedge this risk.

 

Reference no: EM131034034

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