Part 1
Part 1
Part 1
● Time Lags: policies take time to implement and to start showing effects on the
economy. Often, the economic landscape might change before the policy's impact
becomes visible, possibly requiring adjustments or new strategies.
Imported raw materials are more Imported raw materials are cheaper so
expensive so costs of production rise. costs of production fall.
Domestic goods are cheaper in foreign Domestic goods are more expensive in
markets so demand for exports increases. foreign markets so demand for exports
falls.
Foreign goods are more expensive so Foreign goods are cheaper so demand for
demand for imports falls. imports rises.
1. For your liquidity portfolio you consider a EUR-denominated overnight deposit with
a face value of EUR 25,000,000. The prevalent EUR O/N market interest rate is 1.08%.
Calculate the amount you expect to receive on maturity if the day count convention is
Actual/360.
2. Consider a US Dollar CD with a face value of $10,000,000 issued on 1st March 2022
maturing on 1st September 2022. The interest rate is 7% per annum. Calculate the
amount you expect to receive on maturity if the day count convention is Actual/360.
(Hint: There are 184 days between the issue date and the maturity date.)
Yield to maturity = [(Face value - Purchase Price) / Purchase Price] x (Days in the Year / Days to Maturity )
Discount yield = [(Face value - Purchase Price) / Face Value] x ( Days in the Year / Days to Maturity )
3. A 180-day US T-Bill (US government treasury bill) with a face value of $100.00 is issued for $98.50.
What is the discount rate? (Hint: The day count convention is Actual/360.)
4. The Korean Development Bank (KDB) issues EUR-denominated commercial paper with a selling price of
EUR 100 for a purchase price of EUR 99 and 60 days to maturity. Calculate the yield to maturity.
(Hint: The day count convention is Actual/360.)
5. A Bubill (German government bill) with remaining maturity of 90 days is quoted on the market for 99.5
EUR per 100 EUR par value. An institutional investor buys the bond. (Assume Actual/360)
A. Calculate the yield to maturity.
30 days later the same bill is quoted by a market maker at yield to maturity of 1.5%.
B. Calculate the price of the bond at that moment.
C. Calculate the capital gain/loss of the investor if they sell at the price derived in B.