Question 1.

(1 point) You invest EUR 50 million over 30 calendar days at the money
market interest rate of 0.75%. Assuming the day count convention is ACT/360, how much
do you receive at the end of your investment period?

5000000*0.75%*30/360=31250$
Question 2. (1 point) You invest EUR 10 million on a deposit at the money market rate
of 2.7% over 6 months, the Day Count Fraction is 0.5. How much interest have you earned?

10000000*2.7%*0.5=135000
Question 3. (1 point) We are on Thursday 23th June 2022; a bank borrows cash from
another bank in London in USD for 2 months. This is an offshore spot transaction in Euro-
dollars with settlement in (t + 2) and the business day convention is \Modified Following".
Compute the number of calendar days between the start date and the end date of this
transaction, that is the number of calendar days during which the cash has been effectively
lent.
30+31+2=63 days
Question 4. (1 point) Assume you have the choice between investing in the two following
products, both over a 1-year horizon. Investment A offers 2% annually compounded, while
Investment B yields 1.975% monthly compounded. Which investment provides the best
outcome?
B

Question 5. (1 point) You observe an interest rate with semi-annual compounding at 2%.
What can we say about the equivalent interest rate with annual compounding?
A: It is equal to 4%.
B: It is equal to 2%.
C: It is larger than 2%.
D: It is smaller than 2%

Problem 1. Certificate of Deposit Trading (2 points)

You work for a fund manager in London who invests in a USD Eurodollar negotiable
certificate of deposit issued by a reputable bank whose head office in London is located
on Canary Wharf. The CD has a face value of USD 15 million. It was issued by the
bank with initial settlement on Friday 14 September 2018 with maturity two months later on
Wednesday 14 November 2018 with a coupon equal to 3%. You purchased the CD from a broker on
Friday 21 September 2018 who quoted at the time the bid-over yields2.566%- 2:066%. A week later, on
Friday 28 September 2018, your sale the same CD to another broker quoting now the bid-over yields
1.975% - 1.475%. Settlement of these two transactions occur in (t+2) as is customary on the USD
Eurodollar market in London and the purchase and sale prices are both rounded to the nearest dollar.

Question 6. (1 point) Which amount did you pay to the first broker when purchasing the CD?

P current market price of the CD in the secondary market, r its quoted yield
M its face value, C its coupon
B the year day basis (360 or 365)
Nim the number of days between settlement date at issue and maturity
Nsm the number of days between trade settlement and maturity

P=15000000*(1+0.03(8/365)
(1+0.02566(55/365) Days (10+31+14)
=15000000*1/1.0039
=14941727$

Question 7. (1 point) Which profit or loss do you report on these two transactions (positive
number for a gain, negative value for a loss)?

P=15000000*(1+0.03(15/365)
(1+0.01475(48/365) days (3+31+14)
=15000000*1.0012/1.0019
=15000000*0.99870
=14989520$
Profit=sale-purchases
=14989520-14941727=47793$

Problem 2. Cash Investment (3 points)

You work for an industrial company based in Chicago which seeks to invest safely USD 2
million it holds in treasury for a few days. The company decides to secure its investment
through a repo transaction on a US Treasury bill with a dealer bank. The trade date today
is a Friday, the T-bill settles in t + 1, and the company seeks to lend the money for seven
days. We assume no haircut for this transaction and there are no banking holidays in the
next two weeks.

Question 8. (1 point) In how many calendar days will the company receive its cash back
from the dealer bank at the end of this repo transaction?
8 Days
Question 9. (1 point) The General Collateral rate proposed by the bank on this repo
transaction for seven days is 2.054%. How much will the company receive from the bank
at the end of the transaction if it selects a General Collateral repo transaction? Give your
answer rounded to the nearest dollar.

2000000*2.054%*8/360=913$

Question 10. (1 point) Would this amount be lower or larger if the company had requested
a specific T-Bill as collateral

Lower