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Money and Capital Markets: Financial Institutions and Instruments in a Global Marketplace, 8/e

Peter Rose, Texas A & M University

Interest Rate Forecasting and Hedging: Swaps, Financial Futures, and Options

Standard & Poor's Questions

Chapter 9 in Money and Capital Markets: Interest-Rate Forecasting and Hedging: Swaps, Financial Futures and Options

Question 1

Which types of firms or industries represented on the Market Insight list of firms are likely to make the heaviest use of financial derivatives, such as swaps, futures, and options? Why is this likely to be true?

Question 2

One of the largest financial-service firms trading in derivative instruments today is Merrill Lynch. Merrill's derivatives' management policies and activities in the global market for derivatives are described in its Annual Report, which is reachable through Market Insight's link to the main Merrill Lynch web site. After reviewing Merrill Lynch's most recent annual report see if you can answer the following questions:

(a) what was the volume (based on notional or contractual values) of swaps, futures, and option agreements managed by Merrill Lynch in the most recent year available?

(b) which type of derivative instrument was used most heavily by Merrill Lynch?

(c) are these instruments subject to default risk or market risk or both?

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