商業(yè)銀行管理ROSE7e課后答案

1、精選優(yōu)質(zhì)文檔-傾情為你奉上精選優(yōu)質(zhì)文檔-傾情為你奉上專心-專注-專業(yè)專心-專注-專業(yè)精選優(yōu)質(zhì)文檔-傾情為你奉上專心-專注-專業(yè)CHAPTER 8USING FINANCIAL FUTURES, OPTIONS, SWAPS, AND OTHER HEDGING TOOLS IN ASSET-LIABILITY MANAGEMENTGoal of This Chapter: The purpose of this chapter is to examine how financial futures, option, and swap contracts, as well as selected

2、 other asset-liability management techniques can be employed to help reduce a banks potential exposure to loss as market conditions change. We will also discover how swap contracts and other hedging tools can generate additional revenues for banks by providing risk-hedging services to their customer

3、s.Key Topics in this ChapterThe Use of DerivativesFinancial Futures Contracts: Purpose and MechanicsShort and Long HedgesInterest-Rate Options:Types of Contracts and MechanicsInterest-Rate SwapsRegulations and Accounting RulesCaps, Floor, and CollarsChapter OutlineI.Introduction: Several of the Most

4、 Widely Used Tools to Manage Risk ExposureII.Use of Derivative ContractsIII.Financial Futures Contracts: Promises of Future Security Trades at a Set PriceA.Background on FuturesB.Purposes of Financial Futures TradingC.Most Popular Types of Futures ContractsD.The Short Hedge in FuturesE.The Long Hedg

5、e in Futures1.Using Long and Short Hedges to Protect Income and Value2.Basis Risk3.Basis Risk with a Short Hedge4Basis Risk with a Long Hedge 5.Number of Futures Contracts NeededIV.Interest Rate OptionsA.Nature of Interest-Rate OptionsB.How They Differ from Futures ContractsC.Most Popular Types of O

6、ptionsD.Purpose of Interest-Rate OptionsV.Regulations and Accounting Rules for Bank Futures and Options TradingVI.Interest Rate SwapsA.Nature of swapsB.Quality swapsC.Advantages of Swaps Over Other Hedging MethodsD.Reverse swapsE.Potential Disadvantages of SwapsVII.Caps,Floors, and CollarsA.Interest

7、 Rate CapsB.Interest Rate FloorsC.Interest Rate CollarsVIII.Summary of the ChapterConcept Checks8-1. What are financial futures contracts? Which financial institutions use futures and other derivatives for risk management?Financial futures contacts are contracts calling for the delivery of specific

8、types of securities at a set price on a specific future date. Financial futures contract help to hedge interest rate risk and are thus, used by any bank or financial institution that is subject to interest rate risk.8-2. How can financial futures help financial service firms deal with interest-rate

9、risk?Financial futures allow banks and other financial institutions to deal with interest-rate risk by reducing risk exposure from unexpected price changes. The financial futures markets are designed to shift the risk of interest rate fluctuations from risk-averse investors to speculators willing to

10、 accept and possibly profit from such risks.8-3. What is a long hedge in financial futures? A short hedge?A long hedger offsets risk by buying financial futures contracts around the time new deposits are expected, when a loan is to be made, or when securities are added to the banks portfolio. Later,

11、 as deposits and loans approach maturity or securities are sold, a like amount of futures contracts is sold. A short hedger offsets risk by selling futures contracts when the bank is expecting a large cash inflow in the near future. Later, as deposits come flowing in, a like amount of futures contra

12、cts is purchased.8-4. What futures transactions would most likely be used in a period of rising interest rates? Falling interest rates?Rising interest rates generally call for a short hedge, while falling interest rates usually call for some form of long hedge.8-5.How do you interpret the quotes for

13、 financial futures in The Wall Street Journal?The first column gives you the opening price, the second and third the daily high and low price, respectively. The fourth column shows the settlement price followed by the change in the settlement price from the previous day. The next two columns show th

14、e historic high and low price and the last column points out the open interest in the contract.8-6. A futures is currently selling at an interest yield of 4 percent, while yields currently stand at 4.60 percent. What is the basis for these contracts?The basis for these contracts is currently 4.60% 4

15、% or 60 basis points.8-7.Suppose a bank wishes to sell $150 million in new deposits next month. Interest rates today on comparable deposits stand at 8 percent, but are expected to rise to 8.25 percent next month. Concerned about the possible rise in borrowing costs, management wishes to use a future

16、s contract. What type of contract would you recommend? If the bank does not cover the interest rate risk involved, how much in lost potential profits could the bank experience? At an interest rate of 8 percent:$150 million x 0.08 x = $1 millionAt an interest rate of 8.25 percent:$150 million x 0.082

17、5 x = $1.031 millionThe potential loss in profit without using futures is $0.0313 million or $31.3 thousand. In this case the bank should use a short hedge.8-8. What kind of futures hedge would be appropriate in each of the following situations?a. A financial firm fears that rising deposit interest

18、rates will result in losses on fixed-rate loans?b. A financial firm holds a large block of floating-rate loans and market interest rates are falling?c. A projected rise in market rates of interest threatens the value of the financial firms bond portfolio?a. The rising deposit interest rates could be

19、 offset with a short hedge in futures contracts (for example, using Eurodollar deposit futures). b. Falling interest yields on floating-rate loans could be at least partially offset by a long hedge in Treasury bonds. c. The banks bond portfolio could be protected through appropriate short hedges usi

20、ng Treasury bond and note futures contracts.8-9. Explain what is involved in a put option?A put option allows its holder to sell securities to the option writer at a specified price. The buyer of a put option expects market prices to decline in the future or market interest rates to increase. The wr

21、iter of the contract expects market prices to stay the same or rise in the future.8-10. What is a call option?A call option permits the option holder to purchase specific securities at a guaranteed price from the writer of the option contract. The buyer of the call option expects market prices to ri

22、se in the future or expects interest rates to fall in the future. The writer of the contract expects market prices to stay the same or fall in the future.8-11.What is an option on a futures contract?An option on a futures contract does not differ from any other kind of option except that the underly

23、ing asset is not a security, but a futures contract.8-12.What information do T-bond and Eurodollar futures option quotes contain?The quotes contain information about the strike prices and the call and put prices at each different strike price for given months.8-13. Suppose market interest rates were

24、 expected to rise? What type of option would normally be used?If interest rates were expected to rise, a put option would normally be used. A put option allows the option holder to deliver securities to the option writer at a price which is now above market and make a profit.8-14. If market interest

25、 rates were expected to fall, what type of option would a financial institutions manager be likely to employ?If interest rates were expected to fall, a call option would likely be employed. When interest rates fall, the market value of a security increases. The security can then be purchased at the

26、option price and sold at a profit at the higher market price.8-15.What rules and regulations have recently been imposed on the use of futures, options, and other derivatives? What does the Financial Accounting Standards Board (FASB) require publicly traded firms to do in accounting for derivative tr

27、ansactions?Each bank has to implement a proper risk management system comprised of (1) policies and procedures to control financial risk taking, (2) risk measurement and reporting systems and (3) independent oversight and control processes. In addition, FASB introduced statement 133 which requires t

28、hat all derivatives are recorded on the balance sheet as assets or liabilities at their fair value. Furthermore, the change in the fair value of a derivative and a fair value hedge must be reflected on the income statement.8-16.What is the purpose of an interest rate swap?The purpose of an interest

29、rate swap is to change an institutions exposure to interest rate fluctuations and achieve lower borrowing costs.8-17.What are the principal advantages and disadvantages of rate swaps?The principal advantage of an interest-rate swap is the reduction of interest-rate risk of both parties to the swap b

30、y allowing each party to better balance asset and liability maturities and cash-flow patterns. Another advantage of swaps is that they usually reduce interest costs for one or both parties to the swap. The principal disadvantage of swaps is they may carry substantial brokerage fees, credit risk and

31、some basis risk.8-18.How can a financial institution get itself out of a swap agreement?The usual way to offset an existing swap is to undertake another swap agreement with opposite characteristics.8-19.How can financial-service providers make use of interest rate caps, floors, and collars to genera

32、te revenue and help manage interest rate risk?Banks and other financial institutions can generate revenue by charging up-front fees for interest rate caps on loans and interest rate floors on securities. In addition, a positive net premium on interest rate collars will add to a banks fee income. Cap

33、s, floors, and collars help manage interest rate risk by setting maximum and minimum interest rates on loans and securities. They allow the lender and borrower to share interest rate risk.8-20.Suppose a bank enters into an agreement to make a $10 million, three-year floating-rate loan to one of its

34、corporate customers at an initial rate of 8 percent. The bank and the customer agree to a cap and a floor arrangement in which the customer reimburses the bank if the floating loan rate drops below 6 percent and the bank reimburses the customers if the loan rate rises above 10 percent. Suppose that,

35、 at the beginning of the loans second year, the floating loan rate drops to 4 percent for a year and then, at the beginning of the third year, the loan rate increases to 11 percent for the year. What rebates must be paid by each party to the agreement?The rebate owed by the bank for the third year m

36、ust be:(11%-10%) x $10 million = $100,000.The rebate that must be forwarded to the bank for the second year must be:(6%-4%) x $10 million = $200,000.Problems8-1.You hedged your banks exposure to declining interest rates by buying one March Treasury bond futures contract at the opening price on Novem

37、ber 21, 2005(see exhibit 8-2). It is now January 9, and you discover that on Friday, January 6 March T-bond futures opened at 113-17 and settled at 113-16.a.What are the profits/losses on your long position as of settlement on January 6?Buy at 112-06 or 112 6/32 per contract = 112,187.50Value at set

38、tlement on January 6, 113-16 or 113 16/32 = 113,500.Gain = 113,500 112,187.50 = $1312.50b.If you deposited the required initial margin on 11/21 and have not touched the equity account since making that cash deposit, what is your equity account balance?The equity account balance will increase by the

39、gain in the position, thus $1,150 + $1312.50 = $2,462.508-2Use the quotes of Eurodollar futures contracts traded on the Chicago Mercantile Exchange on December 20, 2005 to answer the following questions:a.What is the annualized discount yield based on the low IMM index for the nearest June contract?

40、The annualized discount yield is 100 95.13 = 4.87 percentb.If your bank took a short position at the high price for the day for 15 contracts, what would be the dollar gain or loss at settlement on December 20, 2005?Sell at high price: (1,000,000 x1-(4.87/100)x90/360)x15 = 14,817,375Value at settleme

41、nt: (1,000,000 x1-(4.86/100)x90/360)x15 = 14,817,750Loss: 14,817,375 14,817,750 = -$375c.If you deposited the initial required hedging margin in your equity account upon taking the position described in b, what would be the marked to market value of your equity account at settlement?Initial margin =

42、 $700 x15 = $10,500You realize a $375 loss for this transaction. Thus your equity position is: $10,500 - $375 = $10,1258-3.What kind of futures or options hedges would be called for in the following situations?a.Market interest rates are expected to increase and First National Banks asset and liabil

43、ity managers expect to liquidate a portion of their bond portfolio to meet depositors demands for funds in the upcoming quarter.First National can expect a lower price when they sell their bond portfolio unless it uses short futures hedges in which contracts for government securities are first sold

44、and then purchased at a profit as security prices fall provided interest rate really do rise as expected. A similar gain could be made using put options on government securities or on financial futures contracts.b.Silsbee Savings Bank has interest-sensitive assets of $79 million and interest-sensiti

45、ve liabilities of $88 million over the next 30 days and market interest rates are expected to rise. Silsbee Savings Banks interest-sensitive liabilities exceed its interest-sensitive assets by $11 million which means the bank will be open to losses if interest rates rise. The bank could sell financi

46、al futures contracts or use a put option on government securities or financial futures contracts approximately equal in dollar volume to the $11 million interest-sensitive gap to hedge their risk.c.A survey of Tuskee Banks corporate loan customers this month (January) indicates that, on balance, thi

47、s group of firms will need to draw $165 million from their credit lines in February and March, which is $65 million more than the banks management has forecasted and prepared for. The banks economist has predicted a significant increase in money market interest rates over the next 60 days.The foreca

48、st of higher interest rates means the bank must borrow at a higher interest cost which, other things held equal, will lower its net interest margin. To offset the expected higher borrowing costs the banks management should consider a short sale of financial futures contracts or a put option approxim

49、ately equal in volume to the additional loan demand. Either government securities or EuroCDs would be good instruments to consider using in the futures market or in the option market.d.Monarch National Bank has interest-sensitive assets greater than interest sensitive liabilities by $24 million. If

50、interest rates fall (as suggested by data from the Federal Reserve Board) the banks net interest margin may be squeezed due to the decrease in loan and security revenue.Monarch National Bank has interest-sensitive assets greater than interest-sensitive liabilities by $24 million. If interest rates f

51、all, the banks net interest margin will likely be squeezed due to the faster fall in interest income. Purchases of financial futures contracts followed by a subsequent sale or call options would probably help here.e.Caufield Thrift Association finds that its assets have an average duration of 1.5 ye

52、ars and its liabilities have an average duration of 1.1 years. The ratio of liabilities to assets is .90. Interest rates are expected to increase by 50 basis points during the next six months.Caufield Bank and Trust Company has asset duration of 1.5 years and a liabilities duration of 1.1. A 50-basi

53、s point rise in money-market rates would reduce asset values relative to liabilities which mean its net worth would decline. The bank should consider short sales of government futures contracts or put options on these securities or on their related futures contracts.8-4.Your bank needs to borrow $30

54、0 million by selling time deposits with 180-day maturities. If interest rates on comparable deposits are currently at 4 percent, what is the cost of issuing these deposits? Suppose deposit interest rates rise to 5 percent. What then will be the marginal cost of these deposits? What position and type

55、s of futures contract could be used to deal with this cost increase?At a rate of 4 percent the interest cost is:$300 million x 0.04 x = $6,000,000At a rate of 5 percent the interest cost would be:$300 million x 0.05 x = $7,500,000A short hedge could be used based upon Eurodollar time deposits.8-5.In

56、 response to the above scenario, management sells 300, 90-day Eurodollar time deposits futures contracts trading at an IMM Index of 98. Interest rates rise as anticipated and your bank offsets its position by buying 300 contracts at an IMM index of 96.98. What type of hedge is this? What before-tax

57、profit or loss is realized from the futures position?Bank sells Eurodollar futures at (1,000,000*1-(2/100)*90/360)$995,000 (per contract)Bank buys Eurodollar futures at (1,000,000*(1-(3.02/100)*90/360$992,450 (per contract) Expected Before-tax Profit$ 2,550 (per contract)And Total Profit would be 30

58、0*$2550 = $765,000In this case the bank has employed a short hedge which partially offsets the higher borrowing costs outlined above.8-6.It is March and Cavalier Financial Services Corporation is concerned about what an increase in interest rates will do to the value of its bond portfolio. The portf

59、olio currently has a market value of $101.1 million and Cavaliers management intends to liquidate $1.1 million in bonds in June to fund additional corporate loans. If interest rates increase to 6 percent, the bond will sell for $1 million with a loss of $100,000. Cavaliers management sells 10 June T

60、reasury bond contracts at 109-05 in March. Interest rates do increase, and in June Cavaliers management offsets its position by buying 10 June Treasury bond contracts at 100-03.a.What is the dollar gain/loss to Cavalier from the combined cash and futures market operations described above?Loss on cas