SOLUTIONS MANUAL
All Chapters Included
, CHAPTER 1
Solutions to Exercises
Solution to Exercise 1.
As Figure 1.3 shows, a long position in a bond at time 1 and a forward loan starting at
1 can be used to replicate the payoffs of an interest rate swap.
Solution to Exercise 2.
Eurodollars are time deposits denominated in U.S. dollars at banks outside the United
States. The euro-prefix is used to refer to any currency held in a country where it is not the
official currency, for example, Euroyen or Euroeuro. The euro-prefix has therefore no
connection with the euro currency or the eurozone. The Eurodollar term was first used for U.S.
dollars in European banks, but it expanded over the years to its present definition—a U.S. dollar-
denominated deposit in Tokyo or Beijing would be likewise deemed a Eurodollar deposit.
Solution to Exercise 3.
Figure 1.4 shows, a long position in an equity at time 1 and a forward loan starting at 1
can be used to replicate the payoffs of an equity swap. Eurodollar are deposits denominated in
U.S. dollars at a bank outside the United States
Solution to Exercise 4.
As Figure 1.8 shows, a a foreign currency loan can be synthetically created by borrowing in local
currency, converting the local currency into foreign currency in the spot market and entering
All Chapters Included
, CHAPTER 1
Solutions to Exercises
Solution to Exercise 1.
As Figure 1.3 shows, a long position in a bond at time 1 and a forward loan starting at
1 can be used to replicate the payoffs of an interest rate swap.
Solution to Exercise 2.
Eurodollars are time deposits denominated in U.S. dollars at banks outside the United
States. The euro-prefix is used to refer to any currency held in a country where it is not the
official currency, for example, Euroyen or Euroeuro. The euro-prefix has therefore no
connection with the euro currency or the eurozone. The Eurodollar term was first used for U.S.
dollars in European banks, but it expanded over the years to its present definition—a U.S. dollar-
denominated deposit in Tokyo or Beijing would be likewise deemed a Eurodollar deposit.
Solution to Exercise 3.
Figure 1.4 shows, a long position in an equity at time 1 and a forward loan starting at 1
can be used to replicate the payoffs of an equity swap. Eurodollar are deposits denominated in
U.S. dollars at a bank outside the United States
Solution to Exercise 4.
As Figure 1.8 shows, a a foreign currency loan can be synthetically created by borrowing in local
currency, converting the local currency into foreign currency in the spot market and entering
