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Product code: Marketing-AW489


Heir Canada Estate Planning has taken positions in the following three derivatives:

i. 10,000 forwards on the Euro at $1.40 that mature in six months;

ii. A fixed-for-fixed currency swap with semi-annual payments, notional principals of 10,000 USD and 7,000 Euros, and nine months to maturity; and

iii. A $100,000 FRA.


Using your assigned input values:

(a) Compute the overall value of this derivatives position to the nearest cent under the assumption that none of these derivatives are centrally-cleared,

(b) Compute the current basis of the forward contract. Explain the sign of your computed basis.


In-the-Black Barry is interested in a one-year interest rate swap with quarterly interest payments. Using your assigned values:

(a) Compute the fair fixed rate for the swap to the nearest basis point.

(b) Assume that three months have passed since you entered into the swap (at your computed fair fixed rate) and that the term structure of interest rates has not changed. Compute the value of the swap to the nearest dollar.

(c) Explain why the computed swap value is not zero even though interest rates did not change.


Mood Basics Market Timing is interested in options on the shares of Can Add Any Tire, which pays no dividends. For your assigned inputs:

(a) Compute the value of a nine-month American put on these shares to the nearest tenth of a cent using a three-period binomial tree.

(b) Would a four-period binomial tree price this American put more accurately? Explain your answer.

(c) Compute the value of a nine-month American call on these shares to the nearest tenth of a cent using the Black-Scholes model.

(d) Do your two computed option prices conform to put-call parity? Explain this result.



  • This assignment may be done individually or in a self-selected group of up to four students. No communication regarding the problem set is allowed between groups.
  • If working in a group, your assignment ID is the lowest of your individual assignment numbers and you must use the input values that correspond to it in your analysis.
  • A softcopy of your answers must be submitted to Turnitin.com by 2:00pm on November 18. Answers will be checked for plagiarism and must be submitted in character recognizable Word or PDF format (i.e., text images are not permitted). Your name(s) and your assignment ID must appear at the top of the first page. No credit will be given for assignments that are late or are done by more than four students. Only one submission per group is allowed.
  • You MUST show your formulas and calculations to earn part-marks on numeric questions.


Download Questions

Derivative position of Forwards No. of Forwards:- 10,000 Spot Price S = 1.42 Current Forward rate F= 1.4

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