Derivatives and Alternative Investments

Finance and Investment

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Uploaded: May 26, 2016

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Abstract

This assignment is based on three independent questions. First one is based on currency

swap, second needs calculation of delta, gamma, vega, theta, and rho of financial institution

to show its financial position and the last one is based on futures contracts for hedging. This

also highlights on the hedging scenarios and the wise strategy that can be taken. This also

explains the Greek letters in details from their derivations to application in a real problem. It

also gives an insight on how the value of currency changes with the passage of time.

Q.1 This question needs to calculate the swap values of dollar and euro after a period of 15

months with the given details below.

In this question we have,

Life = 15 months

Exchanging interest rate on £20 million = 14%

Exchanging interest rate on $30 million = 10%

(Both the United Kingdom and the United States is currently flat)

Negotiated interest rate for swap in dollar = 8%

Negotiated interest rate for swap in sterling = 11%

Current exchange rate (dollars per pound sterling) = 1.6500