MGFC30H3 Lecture Notes - Currency Swap, University Of Toronto Scarborough, Swap Rate
Document Summary
Interest rate & interest rate futures: (required for test-1) A firm entered into a forward rate agreement with a bank. The firm agreed to pay the bank a semi- annually compounded interest rate of 4% per annum on a notional deposit of million for a 6-month period starting in two months. The current two- month and eight-month usd libor rates are 2% p. a. and 2. 5% p. a. , respectively. Problem-2: you manage a portfolio of 10,000 5 years zero bonds with a face value of 1,000 and ytm of 5% continuously compounded. You think his portfolio is too risky and intend to bring its duration down to 0 by selling the original portfolio and reinvesting the proceeds into 3 months treasury bills. This manager wants to hedge his position and thinks one of three t- bonds will be cheapest to deliver; some data for these three bonds are as follows:
