9/21/2013 Modeling Credit Value Adjustment FX Forwards and Currency Swaps Alexi Carlos and Zedrick Torres Introduction This paper is concerned with the generalization of the Credit Value Adjustment (CVA) equation for FX Forwards and Currency Swaps. In addition‚ a model for CVA using Visual Basic for Applications (VBA) in Microsoft Excel will be presented. Counterparty credit risk (CCR) is the risk that the counterparty to a financial contract will default prior to the expiration
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enter into a 6-month forward contract on a non-dividend-paying stock when the stock price is $30 and the risk-free interest rate (with continuous compounding) is 12% per annum. What is the forward price? Solution: = = 31.86 5.9. A 1-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $40 and the risk-free rate of interest is 10% per annum with continuous compounding. (a) What are the forward price and the initial value of the forward contract? (b) Six
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all of companies need to face the currency risk. In order to manage the currency risk‚ companies will use different hedging techniques‚ such as financial and operational hedging techniques. For example‚ money market‚ futures contracts‚ options and forwards contracts are commonly used by firms‚ as well as operational hedging techniques. All of 4 types of financial hedging techniques are short-term hedge. Money market is a part of financial markets for assets involved in short-term borrowing‚lending
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Research sold a super computer to the Max Planck Institute in Germany on credit and invoiced €10 million payable in six months. Currently‚ the six-month forward exchange rate is $1.10/€ and the foreign exchange advisor for Cray Research predicts that the spot rate is likely to be $1.05/€ in six months. (a) What is the expected gain/loss from the forward hedging? The expected gain from this sale can be figured by using this equation: 10‚000‚000(1.10-1.05)=10‚000‚000(.05)=$500‚000 expected
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Factors: - Speed of pass - Direction of pass - Angle of pass - Face to face - Timing of run - 1st touch/control - Speed of pass - Direction of pass - Angle of pass - Face to face - Timing of run - 1st touch/control Key Factors: - Forward Passing - Getting players to receive on the half turn - Creating angles - Player rotation 1st Team & Preferred Academy Drills Drill 4 Drill 5 20m 20m 3 O O 4 X X N X 1 X O X X 20m 10v10 20m
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spot exchange rate‚ S; and – the future exchange rate for maturity date‚ forward rate‚ F . • If the investor did not lock in a future exchange rate now‚ the unknown future spot exchange rate would make the investment risky. The investor can eliminate the uncertainty over the future dollar value of the investment by covering the investment with a forward exchange contract. • If the investor covers the investment with a forward contract the arbitrage between two investment opportunities results in a
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most appropriate strategy to be used in hedging the transaction exposures. Choose between: i. Forward market hedge ii. Money market hedge iii. Options hedging Strategy 1: hedging using forward contract Because Hogan will receive AUD in 6-months‚ their concern is that they’ll have to convert the AUD to less USD. 1) Today‚ Hogan buys a forward contract to sell AUD (they’ll receive in 6 months) at locked forward rate of AUD 2.805/£ 2) At t=6‚ Hogan will receive AUD 28 million 3) Hogan sells this AUD28
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Canadian dollars forward. B) purchase Canadian dollar futures contracts. C) purchase Canadian dollar put options. D) purchase Canadian dollar call options. ANSWER: C 2. Graylon‚ Inc.‚ based in Washington‚ exports products to a German firm and will receive payment of €200‚000 in three months. On June 1‚ the spot rate of the euro was $1.12‚ and the 3-month forward rate was $1.10. On June 1‚ Graylon negotiated a forward contract with a bank to sell €200‚000 forward in three months
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Chapter 1: Bond Prices‚ Discount Factors and Arbitrage 1. Use this list of Treasury bond prices as of January 15‚ 2013 (which should be taken as the current date for all the questions below except for question 7) to derive the discount factors for cash flows to be received in 0.5‚ 1‚ 1.5 and 2 years. Bond Price 6.0s of 7/15/13 102-15+ 5.0s of 1/15/14 103-7 3/4 8.0s of 7/15/14 107-24 4.0s of 1/15/15 100-23 1/2 Answer: (a) To find d(0.5) The equation from the 6.0s of 15 July
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value continued to deteriorate. Since Orange has net cash flows in baht resulting from its exports to Thailand‚ a deterioration in the baht’s value will affect the company negatively. Dan Kant‚ Orange’s CFO‚ would like to ensure that the spot and forward rates Orange’s bank has quoted are reasonable. If the exchange rate quotes are reasonable‚ then arbitrage will not be possible. If the quotations are not appropriate‚ however‚ arbitrage may be possible. Under these conditions‚ Kant would like Orange
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