Risk Management - Assignment 1

1. Calculate the daily volume and open position (by individual) for futures
contracts using the given data.
Day
1
2
3
4
5
6
7

Trades
A goes 50 contracts long, B goes 50
short
C goes long 100, A goes long 150, D
shorts 200
A shorts 50, E goes 300 long, F shorts
250
F goes long 150, B shorts 150
A squares off position, G takes the
opposite side
B goes 200 long, G goes 200 short
F squares off position and G takes
opposite side

2. Today is Jan 1st. Using the given interbank quotes, please calculate 3M
forward rates (1st April) for exporter and 4 month forward rates (1st May)
for importer. Assume that the bank does not add any margin to interbank
quotes.
Spot
USD/INR
1M Forward
2M Forward
3M Forward
6M Forward
9M Forward
12M
Forward

65.12/1
3
10/12
15/18
20/25
33/39
55/65
85/99

3. Using the quotes from previous question, also calculate the rates
applicable if the bank wants to hedge its positions booked with exporter
and importer in the interbank market using swap contracts.

4. On March 27th, the importer who booked the forward contract to buy $1
million on Jan 1st requests cancellation of his forward contract. Use the
interbank quotes given below. Also make sure that all cashflows are
booked on current date. The interest rate applicable to this importer is
12% p.a.
Spot
USD/INR
1M Forward
2M Forward
3M Forward
6M Forward
9M Forward
12M
Forward

65.42/
43
12/13
18/21
25/30
38/44
65/75
97/111

5. Also unwind the swap position you had booked in the interbank market to
hedge your position with respect to the importers requirements. The
interbank lending rate is 9% p.a. Please settle all cashflows on current
date. Please use the quotes from question 4.

6. You are a trade at the treasury desk of a bank. You are allowed to take
positions in the market to the extent of US$1 million or equivalent in any
currency. The quotes in the interbank market for USD/INR are as follows:
USD/INR Quotes:
Bank 1 Rs. 65.33/35
Bank 2 Rs. 65.36/37
Make use of any arbitrage opportunity in the market to make profits for
your bank.

Problems using continuous time:

7. Spot price of Airtel is Rs. 1,800. Continuously compounded interest rate is
9%. Futures contract for delivery in 60 days is Rs. 1,850. In case there is
any arbitrage opportunity, please make use of it to book profits. Please
explain steps in detail. Assume that you can borrow and lend unlimited
amounts at the prevailing interest rate.

8. In the previous problem, at what interest rate will Rs. 1,900 be the fair
value for a forward contract?
9. Spot price of gold is Rs. 1,700/gm. 3 month Gold futures are trading at Rs.
18,800 for 10gms. In case there is any arbitrage opportunity, please make
use of it to book profits. Please explain steps in detail. Assume that you
can borrow and lend unlimited amounts at the prevailing interest rate of
12% continuous compounding.

10. Given below are closing prices for a 10 gm. gold futures contract. The
initial margin is 10% of the value of the contract and the maintenance
margin is 7%. A has taken a long position and B has taken a short position
on a single futures contract at Rs. 19,950. Calculate daily MTM and margin
calls for both A and B for the days they hold their open position.
Da
y
1
2
3
4
5
6
7
8
9
10

Closing
price
Rs. 19,966
Rs. 20,016
Rs. 19,500
Rs. 19,111
Rs. 20,000
Rs. 20,987
Rs. 19,678
Rs. 19,888
Rs. 19,573
Rs. 20,634

As position is liquidated at the closing price of day 8 and Bs position is

liquidated at the closing price of day 10. Calculate the total profit/loss
made by both A and B once their positions have been squared off.