Hi guys, I wish you all a happy and prosperous new year. I 've got some problems with Chapter 5. I would appreciate it if anyone could spare a few minutes and take a look. My questions follow below : 1) pg 3, black box, is this saying that margin payments offer insurance to both parties against potential losses? How is this done in practice? Does the Clearing House make any profit by acting as counterparty to every trade? 2) pg 3, 5th paragr., last sentence, after the first day, the supplier has... 93000 pounds. Yes, but under the futures contract, the supplier agrees to sell the bond future at 94000 pounds in 3 months' time ? 3) pg 4, top line, physical delivery of a bond. Does this mean selling the bond ? 4) pg 6, under bond futures, 2nd paragr. ,first line, does the company have to buy the bond and therefore pay a price in order to make a profit to offset the potential loss on its loan? The gain on the bond futures is the difference in the bond price but the company has to pay to buy the bond. The gain could be very small comparing with the price paid for the bond. 5) Same paragr, are interest rates fixed or variable in this example ? 6) Same paragr., last line, the uses of bond futures...non-financial company. Why is a non-financial company ? 7) pg 7, under stock index futures, last line, The predator company...this risk. (i) Why buy and not sell ? (ii) Stock Market index: how is this index constructed? Does it link the share price to short term interest rates? Could you give me an exam. of a bond index ? 8) pg 11, about credit risk, is it possible that the bank could default on its payments to the company? 9) pg 11, last paragr.the swap has a -ve value to the def. party. Is this due to market risk? i.e. P.V. of net outgo under the agreement increases? same paragr, the risk that the counterparty...maturity. What is meant by that ? 10) pg 14, first paragr. in black, what does comparative adv. mean in this context ? Can you give me an example showing how an inter. rate swap redudes the total cost of financing and both companies will benefit from a lower cost of debt? Thanks
