Chapter 13 Questions and Answers

Topics: Futures contract, Short, Interest rate future Pages: 2 (260 words) Published: August 24, 2013
Kristine Palisano
HW week 6 Individual-work 2
August 24, 2013

1. Describe the general characteristics of a future contract. How does a clearinghouse facilitate the trading of financial futures contracts?

2. How does the price of a financial futures contract change as the market price of the security it represents changes? Why?

3. Explain why some futures contracts may be more suitable than others for hedging exposure to interest rate risk.

4. Will speculators buy or sell Treasury bind futures contracts if they expect interest rates to increase? Why?

7. Financial assets- Would it be more like to be adversely affected by an increase or a decrease in interest rates? Should it purchase or sell interest rate futures contracts in order to hedge its exposure?

8. Financial liabilities- Would it be more likely to be adversely affected by an increase or a decrease in interest rates? Should it purchase or sell interest rate futures contracts in order to hedge its exposure?

9. Why do some financial institutions remain exposed to interest rate risk, even when they believe that the use of interest rate futures could reduce their exposure?

10. Explain the difference between a long hedge and a short hedge used by financial institutions. When is a long hedge more appropriate than a short hedge?

11. Explain how the probability distribution of a financial institution’s returns is affected when it use interest rates futures to hedge. What does this imply about its risk?

12. Describe the act of cross-hedging, what determines the effectiveness of a cross-hedge?
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Answers to End-of-Chapter Questions Essay
  • Essay about Chapter 13 Answer
  • Questions and Answers for Chapter 4 Essay
  • Chapter 13
  • Answers to Questions Essay
  • Questions & Answers Essay
  • dbq 13 question answers and essay
  • Chapter 13, 14, 15, and 16 macroeconomics questions Essay

Become a StudyMode Member

Sign Up - It's Free