Quantitative Finance

Futures and Forwards

Futures and Forwards: Level 1-2 Challenges


The blue curve in the above plot shows the interest rate for short-term loans set by the United States Federal Reserve Bank. As you can see, the rate has a long term downward trend, and has been near zero since 2009. The gray curves show projections for the future value of the short-term rate from the forward curve. What can we say about the forward projections vs the actual short-term interest rate set by the Fed?

How does the price of a future change as volatility of the underlying increases?

If the oil future is in contango, which of the following activities are we most likely to observe?

Image credit: Wikipedia Suicip

A publicly traded firm is in desperate need of money. However, due to it's credit rating, it is unable to obtain loans from the market.

Which of the following trades is the best for it to do?

You buy a May Gold Forward contract from a Lehman Brothers trader. What happens when Lehman collapsed?


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