FMP Quiz 2

vandana.jain
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Joined: Tue Jul 24, 2012 4:56 pm

FMP Quiz 2

Postby vandana.jain » Fri Oct 12, 2012 10:26 am

Please help me for this problm
Roughly how many three-month LIBOR Eurodollar futures contracts are needed to hedge a position in a $200 million, 5-year receive-fixed swap?
Choose one answer.
a. Long 250 Incorrect
b. Short 3,200 Correct
c. Short 250 Incorrect
d. Short 40,000 Incorrect
The correct answer is short 3,200.

The dollar duration of a 5-year 6% par bond is about 4.3 years. Hence the DVBP of the position is about $200,000,000 × 4.3 × 0.0001 = $86,000. That of the futures is $25. Hence the ratio is 86,000/25 = 3,440.
how this 6% is calculated and how the duartion is 4.3
eurodollor future duration should be three mth?

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shreyas
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Joined: Thu Jul 19, 2012 6:49 pm

Re: FMP Quiz 2

Postby shreyas » Sat Oct 13, 2012 11:44 am

The question is actually incomplete. Thanks for making a note of it. We will correct it from our end.


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