US 2 YR yield
US 10 YR yield
2 YR -10 YR spread
March 2nd 2020
0.84%
1.10%
March 9th 2020
0.38%
0.54%
Yield shift in basis points
• Fill in the blank boxes – bp move and yield curve spread
• What has happened to interest rates?
• How would you describe the yield curve movement (up/down, steeper/flatter, parallel/non-parallel)?
• What do you think happened between March 2nd and March 9th? (not required knowledge for exam)
• Who might do an outright FX forward hedge and why?
• What is basis risk?
• Explain a US T- bond delivery process
• Explain the difference between forward FX and FX futures
• If you are long Eurodollar futures do you profit from rising or falling interest rates?
• If you pay fix and receive floating do you want interest rates to rise or fall?
• Explain how buying a CDS protects you from credit losses
• What is an ETF? How does it differ from a conventional investment fund?
• If you are long options what is your maximum profit and loss?
• Explain ITM and OTM calls and puts
• Explain net delta
• If you are short an ATM straddle, what do you want the market to do?
• What is a credit event?
• Bond duration example – $100mm portfolio, 10-year futures 120.00 ( face value of contract is $100,000). CTD duration is 7 years, Portfolio duration is 9 years – how many contracts needed to hedge?
• Equity portfolio hedge example – value of portfolio is $10mm, S+P 500 futures are 2500, 1 contract is worth $250 * index, beta of portfolio is 1 – how many contracts needed to hedge?
• When might it be advantageous to write covered calls?