Problem 3.1. Under what circumstances are (a) a short hedge and (b) a long hedge appropriate? A short hedge is appropriate when a company owns an asset and expects to sell that asset in the future. It can also be used when the company does not c
CHAPTER 4 Interest Rates
Problem 4.1. A bank quotes you an interest rate of 14% per annum with quarterly compounding. What is the equivalent rate with (a) continuous compounding and (b) annual compounding? (a) The rate with continuous c
Problem 1.1 What is the difference between a long forward position and a short forward position? When a trader enters into a long forward contract, she is agreeing to buy the underlying asset for a certain price at a certain time in the future.
Problem 2.1. Distinguish between the terms open interest and trading volume. The open interest of a futures contract at a particular time is the total number of long positions outstanding. (Equivalently, it is the total number of short positions