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sample_quiz_4_solutions[1] - Version Fin 536 Sample Quiz 4...

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Version Fin 536 Sample Quiz 4 Solutions Name____________ Section________ Note: You must review all potential topics for the quiz. This sample quiz does not cover all testable topics. 1. Fill out the answers. a. (Interest rate swap) National Bank has $200b Adjustable Rate Mortgage (ARM) as assets on its balance sheet. The interest rate on the ARM is typically 5%+Libor. The bank is considering hedging risk in the interest income from the ARM with a three-year interest rate swap. The bank should be paying ___ floating _ ___(floating/fixed) rate interest in the swap deal. If the market interest rate (Libor) rises later, the bank has a __loss_ __(loss/gain) in the swap trading. b. (Greek letters) List the signs of the following Greek letters of options on euro. Greek letter Call Put Δ + + ρ + - . c. The two components of options premiums are the _intrinsic value___ and __time value ___. 2. (Buy an option) Samuel Samosir works for Peregrine Investments in Jakarta, Indonesia. He focuses his time and attention on the U.S. dollar/Singapore dollar
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