More questions on interest rate futures:
• When the US central bank changes the fed funds target rate to alter monetary policy what rates do they influence the most ? (usually)
• Short maturity rates
• Medium maturity rates
• Long maturity rates
• If there is a prolonged period of monetary easing of credit i.e. lowering of official interest rates, what impact would you expect it to have on the yield curve?
• Flattens
• Steepens
• Stays the same
• Which of the following might be a reason for a negative sloped curve from 2 years to 30 years?
• Monetary conditions have been tightened
• Demand outstrips supply of long dated bonds
• The market expects the next move in rates to be down
• All of the above
• If my bond portfolio has a duration of 5 years and I hedge the market risk by selling 10 year futures, which of the following are true?
• I have immunised my portfolio from market risk
• I have a curve risk of a flattening curve
• I have curve risk of a steepening curve
• I have curve and market risk still
• If I hedge a $100mm loan exactly in Eurodollar futures when they are trading at 99.50 and I take the position into expiry and the contract settles at 99.75; how much have I made or lost on my hedge?
• $62,500 loss
• $25,000 loss
• $62,500 gain
• I sell 100 classic T-Bond futures at 122-24 and buy them back at 120-08. What is my profit or loss?
• $150,000 gain
• $675,000 gain
• $835,078 gain
• If I am a market maker in US Treasuries and make a short sale to a customer in the current 10 year treasury note and buy 10 year T note futures as a hedge – am I long or short the 10 year basis?
• Long basis
• Short basis
• If the basis widens out do I lose or make money on this position?
• Lose money
• Make money
• Which of the following are reasons why US interest rate futures are extremely popular
(average volumes have been growing for decades)?
• Market participants are more risk averse
• Speculation is actively encouraged
• Futures are a cheap, efficient and liquid hedging tool
• Regulators insist on hedging strategies using futures
• Cash market volumes have increased significantly
• Free 0% money (ZIRP) has to find a home somewhere
• If you were managing a long-only US credit bond portfolio and needed to hedge the risk of higher interest rates, what derivative would be more appropriate than just selling US interest rate futures?
• Bond options
• Interest rate swaps
• Forward start bonds
• Which of the following risks would you be exposed to in a long US credit bonds/short US interest rate futures position?
– curve risk
– basis risk
– market risk
– all of the above
Explain your answer.