Atmitmotm the results are itm as long as the pl is

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(4) “ATM/ITM/OTM”– The results are ITM as long as the P/L is exceedsthe negative notional!What is the break even exchange rate? = Strike (–) ($Premium$ / Notional)
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What is the break even exchange rate?Answer= premium + strike price (ex: 0.0564 premium + 1.57 strike = 1.6264 break even). “if she opted for the equivalent…what would her P/L look like?”– Steps: (1) locate the opposite premium(ex. 0.0223). (2)
Exchange-Traded Contracts– These are appealing to speculators who do not normally have access to the over-the-counter (bank) market. The contracts are settled through a clearinghouse (guaranteed payment).Options on Over the Counter Market – Main advantage on these options is that they are tailored to the specific needs of a firm. The buyer must assess the writing bank’s ability to fulfill the option.Indication– A bid-offer quoteInterest Rate Futures– Most widely used futures are Eurodollar futures and U.S. Treasury Bond futures.Ex: A company has a $60m floating Eurodollar loan at LIBOR, and would like to hedge via buying interest rate futures. The next coupon payment is in June(it’s now December) “Would he buy or sell futures contracts to hedge the company’s position?”– Sellin order to pay a fixed rate. *Calculate the yield! 1. Find the contract coupon month and locate the ‘last’ # (ex. 99.710). Yield = (100 (-) 99.71) / 100 = .0029 = 0.29%.For the following values of LIBOR, what will the company’s cash flows look like?– 1. Figure out how many months apart we are from the current date – coupon date (ex.6 months). 2. Equation = (LIBOR – Yield) / fraction of time * loan value. Ex: ((0.35% - 0.29%) / 2) * 60m = $18,000. **Note: The company will gainas long as their yield (AKA fixed rate)is lower than LIBORand vice versa.Forward Rate Agreement (FRA)

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