Which of these statements best describes a practical reason issuers prefer swaps to a series of FRAs when managing interest-rate exposure?
Explanation
Swaps are often chosen by issuers/investors to transform exposures across multiple periods with one contract and to match periodic cash flow schedules, reducing operational complexity.
Other questions
A non-dividend-paying stock currently trades at EUR125 and the one-year risk-free rate is 1% (annual discrete). What is the one-year no-arbitrage futures price f0(T) for a contract on one share?
A commodity futures contract of 100 units has spot S0 = 1770 per unit, storage cost payable at maturity of 2 per unit, and risk-free rate 2% annual. For 91 days to maturity (T = 91/365), which futures price per unit is correct using discrete compounding and PV of storage paid at maturity?
Which statement best describes the relationship between the cumulative realized gains on a futures contract and an otherwise identical forward contract at maturity, ignoring transaction costs?
A futures contract on a short-term market reference rate (MRR) quotes price f = 98.25. What implied MRR (annualized) does this represent for the contract tenor?
An investor sells a gold futures contract (100 ounces) at initiation. On day 1 the futures price falls by $5 per ounce and the investor is short. What is the change in the investor’s futures contract value on that day (assume contract size 100 ounces)?
If futures prices are positively correlated with interest rates and interest rates rise over the contract life, how does the futures price generally compare with the forward price for otherwise identical contracts?
A trader wants to hedge a forthcoming need to borrow for one month in one month (1m1m). Which FRA position should the trader take to lock in borrowing cost: pay-fixed or receive-fixed?
Calculate the implied one-year forward rate (IFR1,1) given one-year zero rate z1 = 2.3960% and two-year zero rate z2 = 3.4197% (annual compounding).
A trader holds a short position in an FX forward where S0,f/d = 1.192 USD/EUR, F0,f/d = 1.201 USD/EUR, rf = 0.50% USD, rd = -0.25% EUR, T = 1 year. If the domestic (USD) risk-free rate instantaneously rises by 25 bps to 0.75% while others constant, what happens to the MTM value (USD) of the long USD/EUR forward from the long's perspective?
Which of the following best explains the convexity bias between interest-rate futures and FRAs (forwards)?
A forward contract on an equity index with continuous compounding uses the formula f0(T) = S0 e^{rT}. For S0 = 2000, r = 3% annual, T = 0.5 year, what is f0(T)?
A futures contract on a commodity settles daily. Which of the following is a direct consequence of this daily settlement mechanism?
Which of the following affects the forward price but not directly the futures daily P/L? (Assume other factors unchanged.)
A short-term interest-rate futures contract notional is $1,000,000, underlying MRR for quarter is 2.21%. What is the contract deposit value for the quarter (i.e., the notional adjusted for interest for the quarter)?
If a trader sells (short) an interest-rate futures contract and yields (MRR) rises, what happens to the trader’s futures position value (assuming standard 100 - yield quoting)?
A futures contract has an initial margin of $5,000 and maintenance margin of $4,500 per contract. On day 1 the holder has a realized loss that reduces margin account to $4,450. What is the usual required immediate action?
Which of these conditions is sufficient for forward and futures prices to be equal for contracts with the same underlying and maturity?
An FX forward price F0,f/d(T) equals S0,f/d e^{(r_f - r_d)T}. In this formula what does r_f - r_d represent?
A 6-month FRA fixed rate is 2.25% (actual/360 quarterly convention) and at settlement the realized 6-month MRR is 2.15%. For a notional of CNY100,000,000 and period 90/360, what is the end-of-period net payment before discounting?
If a dealer clears OTC forwards through a CCP and posts daily margin similar to futures, what is a likely consequence for the price difference between exchange futures and OTC forwards?
Calculate the forward price F0(T) for a stock paying a discrete dividend of EUR0.30 at t=3 months and t=6 months, given S0=50.6311? (Assume risk-free rate 5% annual and forward T=6 months).
An investor sells a futures contract and simultaneously posts initial margin. Over the contract life interest rates rise and futures prices are positively correlated with interest rates. How does this affect the profitability of the short futures position compared to a short forward with identical terms?
A CME copper futures contract size is 25,000 pounds, initial margin $10,000, maintenance $6,000. Spot price is $4.25 per pound. Approximately at what per-pound futures price drop would trigger a margin call (i.e., initial margin minus maintenance = $4,000 loss per contract)?
An investor has a long position in a six-month forward on an equity with forward price F0(T) and simultaneously enters an equivalent futures position. If interest rates remain constant over the period, which of the following is true about the two positions’ prices over time?
A futures contract on a 3-month MRR has BPV per $1,000,000 notional equal to $25 per basis point. For a $50,000,000 notional what is the contract BPV for a 1 bp change (period = 1/12)?
Which of the following best describes convexity bias magnitude as maturity increases?
A futures contract on gold is cash settled. Initial margin 4,950 per 100-ounce contract. On day 1 futures price falls by $5/oz. If the holder is the long, what happens to margin account and what payment occurs?
A currency trades at spot 16.909 ZAR/EUR and a six-month forward was set at 17.2506. If ZAR/EUR spot immediately appreciates to 16.5 with rates unchanged, what is immediate MTM impact from viewpoint of forward seller of ZAR/EUR (i.e., agreed to sell ZAR)?
Which statement best summarizes why forward contracts typically have value zero at inception while options do not?
An equity forward has S0 = 295 INR, T = 6 months, F0(T) is 300.84 INR. What implied continuously compounded annual risk-free rate r satisfies F0 = S0 e^{rT}?
Which of the following best explains the convenience yield in commodity futures pricing?
A futures price f0(T) on a non-dividend-paying stock is below the cost-of-carry no-arbitrage value. What trading strategy would create riskless arbitrage (ignoring transactions) at t=0?
An interest-rate futures contract quotes price 98.5 (three-month tenor). What is the implied 3-month MRR (annualized percent)?
Which of the following best describes why central clearing has reduced differences between futures and forwards?
A trader uses a futures contract to hedge a $50,000,000 exposure to a 1-month MRR in one month. If the contract BPV is $416.67 per bp, and the market-implied 1-month forward in one month rises by 100 basis points, what is the approximate gain from the futures hedge?
Which of the following statements best captures the effect of a higher risk-free rate on the futures price of an asset with no income?
A trader sees a futures quote for three-month SONIA futures expiring in one year above 100. What does that imply about expected 3-month SONIA yield in one year?
Which factor among the following increases both call and put option values on a given underlying (other things equal)?
Which of the following best describes a covered call strategy on a stock held long?
Using put-call parity S0 + p0 = c0 + PV(X), which instrument combination replicates a long stock position synthetically?
A three-period zero rate z3 = 4.0005% gives discount factor DF3 = 1/(1+z3)^3. If z3=0.040005, what is DF3 approximately?
A dealer expects to owe MRR next quarter and takes a short interest-rate futures position to hedge. Which direction on the futures market corresponds to this hedge?
Which of the following most directly causes a futures margin call?
Which relationship holds for FX forward MTM at time t: Vt(T) = St,f/d − F0,f/d(T) e^{-(r_f - r_d)(T-t)} ?
A futures contract and forward contract are identical except that futures are marked to market daily. Which additional market statistic will most influence the difference in their prices: volatility of interest rates, correlation between interest rates and futures prices, or liquidity?
A trader observes two zero-coupon government yields: one-year z1 = 2.396% and two-year z2 = 3.4197%. She wants to lock in a one-year rate starting in one year (IFR1,1). What economic rationale does the implied forward rate represent?
When comparing an FRA and an equivalent futures contract, why might the FRA settlement be smaller in absolute dollar amount than the futures BPV result for the same rate move?
A futures contract and forward contract on the same underlying and maturity have prices equal at initiation. If, during contract life, futures and interest rates become negatively correlated, what relative change is expected between futures and forward prices?
Which of the following best characterizes the primary practical difference between exchange-traded futures and cleared OTC forwards after central clearing reforms?