FINANCIAL RISK MANAGEMENT INDEX

Accomondation Bills 3.10M

Accounting Rate of Return Method (ARR) 4.15
Adjusted Present Value (APV) 4.36M
Allied Irish Bank (AIB) 2.4M
Allsopp Report Read 7.1.1
Application Service Provider (ASP) hosting 2.27T
Arbitrage 5.3B
Asset Beta 4.24M
Australian Financial Reporting Standard (FRS) 1.13M
Australian Financial Services (AFS) licensing 1.12
Australian Graduate School of Management (AGSM) 4.12M
Australian Guarantee Corporation 3.16B
Australian Prudential Regulation Authority (APRA) 1.13B 1.21B
Australian Stock Exchange (ASX) 1.12B
- Advantages & Disadvantages of listing on the ASX 3.30
- Listing Rule for listed entities 3.29 Ans 3.3
AWA Ltd Read 1.2.1 Ans 1.4

Back Office 2.16

Backwardation (Forward Price < Spot Price) 5.15M
Bank Bill 3.10B
Bank for International Settlement (BIS) 2.15M
Bank Overdraft 3.13T
Bank VS Corporations (Differences) Ans 1.2
Baring Bank Disaster 8.4B
Base Currency 7.5B
Beta Coefficient 4.10T 4.12M
Black Scholes Merton Option Pricing Model 5.25T
Bills of Exchange 3.10M
Board's responsibility 2.4M
Bonds - Types 3.20B
Business Risk 4.4B

Capital Asset Pricing Model (CAPM) 4.10M

Capital Budgeting 4.14
Capital Budgeting - Advanced 4.28M
Capital Structure 4.6
Cash Disbursement 3.5T
Cash Flow Analysis 1.15B 1.16
Cash Flow Forecast 3.4B 4.28M
Cash Flow Management 3.4T
Cash Management Centralising - Benefits Ans 1.2
Cash Settled 5.6M
Centralisation VS Decentralisations 1.28
Centralisation (Disadvantages) 1.30
Chief Executive Officer (CEO) 1.14M
Chief Financial Officer (CFO) 1.14M
Collars
- Foreign Exchange Collars 7.24
- Interest Rate Collars 6.20T
Commercial Bills of Exchange 3.11T
Commercial Paper - US 3.21T
Commodity Price Risk 1.5B
Commodity Swaps 5.14B
Company Beta 4.12M
Competitor Exposure 1.30M
Contango (FW Price > Spot Price) 5.15M
Control Effectiveness Read 2.1.4
Control Model Read 2.1.4
Convertible Notes 3.25T
Corporate Financial Decisions 4.3M
Corporate Governance - Board & Mgt Responsibility 2.4M
Corporate Governance - Regulatory Requirement 1.12M
Corporate Law Economic Reform Program (CLERP) 1.13T
Corporate Treaurers - Responsibilities & Obligations 1.12
Corporate Treasury history 1.17T
Corporate Tresury - Role 1.18B 1.19T
Cost Centre 1.18M 1.22B
Cost of Debt 4.7M
Cost of Debt (After Tax) 4.8M
Cost of Equity (Use of CAPM) 4.8B
Cost of Preference Shares 4.12B 4.13
Credit Exposure 2.14T
Credit Limit Reviews 2.14B
Credit Policy Ans 2.2B
Credit Risk 1.5B 2.12M
- Controls 2.15M
- Counterparty risks 1.5B
- Country / political / sovereign risks 1.5B
- Estimation 2.12B
- Modelling 2.13B
- Settlement risks 1.6T
Cross Currency Swaps (CCY) 5.11M 7.18T
Cross Rate 7.10M
Currency - Factors affect supply & demand of currency 7.3T
Currency Risk Management 7.29

Data - Centralisation V Decentralisation 2.24

Data Maintenance 2.8B
Debentures 3.16
Debt Defeasance 3.18T
Debt Instruments - Seniority if repayment 3.19T
Debt Repurchase Program 3.17B
Debt Restructring 3.17
Debt Switch 3.18T
Declining Ratio - Benefits 6.8M
Derivatives
- AASB 139 Definition 5.2M
- Embedded Derivatives 5.27M
- Foreign Exchange Derivatives 5.29M
- Host Contracts 5.28
Directors's responsibility & obligations 1.11T
Directors's duty related to treasury function 1.11M
Disclosure Rule 3.32
Dividend Reinvestment Scheme 3.23B

Efficient Frontier 1.7M

Effective Interest Rates App 4.7
Embedded Derivatives 5.27M
Employee Share Ownership Schemes 3.24B
Equity Financing 3.21M
Equivalent Annual Annuity (EAA) 4.27T
Estimate of returns 4.12T
Exchangeable Notes 3.26M
Expectation Hypothesis App 3.3T
Expected Return (Formula) 1.7B
Exposure Management 1.30
Exposure Orientation 1.21B
External Data 2.8M
Eurobonds 3.20M

Factoring 3.7B
Factoring - Advantages & Disadvantages Ans 3.1
FENCICS (Option Pricing) 5.4B
Financial Risk
- Business Risk 4.4B
- Commodity Risks 1.5M
- Counterparty risks 1.5B
- Country / political / sovereign risks 1.5B
- Credit Risk 1.5B
- Financial Risk 4.4B
- Foreign Exchange Risks 1.5M 7.4
- Funding Risks 1.4B 2.11T
- Funding Sources 1.4M
- Herstatt Risk Read 7.1.1
- Interest Rate Risks 1.5T
- Junk Bonds 1.6B
- Legal Risk 2.18
- Liquidity Risks 1.4M 2.11B Ans 2.2
- Market Risk (Change in MV of instrument) 2.10B
- Operational Risks 2.15M 4.4B
- Settlement risk 1.6T
- Small Organisations 1.4B
- Type of risks 1.4M
Fisher Effect (Nominal Interest Rate) 4.30B
Fixed & Floating Interest Rate 1.21T
Flotation Costs 4.37M
Foreign Currency Derivatives 5.29M
Foreign Exchange Management - strategic approach Ans 1.7M
Foreign Exchange Rate
- Collar Option 7.24
- Competitive Exposure 7.4
- Cross Currency Swaps 7.18T
- Cross Rate 7.10M
- Cross Rate Calculations 7.11
- Currency Option Pricing 7.20
- Direct Quote & Indirect Quote 7.5B 7.6
- Economic Exposure 7.4
- Exposure 7.4
- Factors influence Supply & Demand of Currency 7.3T
- Foreign Exchange Contracts (FECs) 7.12M
- Foreign Exchange Option Strategies 7.21
- Forward Hedge & Money Market Hedge 7.15
- Forward Points 7.13T
- Forward Rate VS Interest Rate 7.14
- Historic Rate Rollover (HRR) 7.16M
- Market Conventions 7.5M
- Participating Forward 7.26
- Point 7.7B
- Quotation Conventions 7.5B
- Spread 7.10T
- Transaction Exposure 7.4 7.30T
- Translation Exposure 7.4 7.30B
- Swap 7.17M
Foreign exchange risk 1.5M
- Competitive exposures 1.5M
- Transactions exposures 1.5M
- Translations exposures 1.5M
Forward Rate Agreements (FRA)
- Background 5.6M
- Interest Rate 6.9B
- Pricing 5.7B
- Product Overview 5.6B
- Settlement Calculation 5.8T
- Terminology (3/6 or 1/2 etc) 5.7M
- Trading Process 5.8M
Forward Exchange Contracts (FECs)
- Background 5.12M
- Foreign Exchange 7.12M
- Pricing of FECs 5.13M
- Product Overview 5.12B
Free Cash Flow (FCF) 3.5M
Front Office 2.16
Fully Drawn Advances (FDAs) 3.13M
Funding Gap 3.8B
Future
- Background 5.5T
- Initial Deposits 5.6T
- Margin Calls 5.6T
- Product Overview 5.5M
- Trading Process 5.5B

Government & Semi Government Bond 3.15B

H

Hedging
- Background 8.3
- Benefit of AASB 139 8.4
- Benefit of hedging 1.9M
- Cash Flow Hedges 8.15
- Collars 6.20M
- Definitions (AASB 139) 8.2
- Documentations 8.12B
- Dollar Offset method 8.25B
- Effectiveness of Hedge 8.25
- Fair Value 8.3M
- Fair Value Hedge 8.19
- Firm Commitment 8.10M
- Foreign Operation 8.11B
- Forward Hedge 7.15
- Interest Cap 6.17B
- Interest Floor 6.19
- Interest Rate Swaps 6.15M
- Matched Terms method 8.27T
- Money Market Hedge 7.15
- Net Investment Hedge 8.23
- Non Financial Items 8.12M
- Options and Time Value 8.8B
- Probility of future transactions 8.10B
- Reasons for hedging 1.9M
- Regression Method 8.26M
- Sold Options 8.7B
- Swaptions 6.21B
Herstatt Risk Read 7.1.1
Hire Purchase 3.15T
Historic Rate Rollover (HRR) 7.16M
Hybrid Securities 3.25

Implementation Management 2.7T

Implied Forward Rate App 3.2M
Incremental Cash Flow 4.28M
Inflation effect on cash flow 4.30M S.G. P23
Initial Public Offering (IPO) 3.22B
Interest Rate - Fixed 6.6M
Interest Rate Risks 1.5T 6.2
- Collars 6.20T
- Declining Ratio - Benefits 6.8M
- Forward & Futures 6.9B
- FRA vs Swap 6.15M Ans 5.1
- Interest Rate Risk Management 6.3M
- Normal Zero Curve 6.7B
- Options 6.17
- Sensitivities of interest rate 6.4T
- Short Term & Long Term IRR Management 6.3B
- Swaptions 6.21
- Timeframe 6.4B
Interest Rate Swaps (IRS) 5.8B
Internal Control Environment 2.8M
Internal Environment 1.32
Internal Rate of Return Method (IRR) 4.17M
IRR Method - Disadvantages & Problem 4.20T
International Accounting Standard (IAS) 1.13
International Swaps and Derivative Association (ISDA) 2.18T
Interpolation 4.17B
Investment - Speculative & Non-Speculative 5.4M

Junk Bonds 1.6B

Key Performance Indicators (KPI) 2.16B

Lags (4 Types) 1.30M

Lamfalussy Minimum Standards Read 7.1.4
Leasing 3.14
Legal Risk 2.18
Liquidity 3.4T
Liquidity Preferences App 3.3M
Liquidity Risk 1.4B 2.11B Ans 2.2
Listed and non-listed company 3.22M
Long Term Debt Financing 3.15B

Management Implementation 2.7T

Management Responsibility 1.14M
Management Strategy 1.30B
Management VS Senior Management 2.5T
Margin Calls 5.6T
Market Conventions - FX Rate 7.5
Market Risk (Change in MV of instruments) 1.5T 2.10B
Market Risk Premium 4.12M
Market to Market 1.21M
Middle Office 2.16
Monitoring & Reporting 2.8T
Mortgage Repayments App 4.5
Murex (Bond & Derivative Pricing) 5.4B

National Bank Australia (NAB)

- Analysis 2.19
- Management & Culture 2.22
- Reasons for losses (failure) 2.4T
- Systems 2.23
Negative Pledge Borrowing 3.18M
Negotiable Certificate of Deposits (NCD) 3.11B
Net Present Value Method (NPV) 4.16B
Normal Zero Curve 6.7B
Novation Process 5.5B
NPV & IRR Comparison 4.18M

One Point Entry 2.25T

Opening exposures 1.19M
Opearational Risk
- Board & Mgt's Responsibilities 2.4B
- Conttrol 2.15B 2.16
- Definition 2.4B 2.15M 4.4B
Opportunity Cost 4.28B
Options
- Call Options (Long Call) 5.18B
- Call Options (Short Call) 5.19B
- Currency Option Pricing 7.20
- Definition 5.15B
- Foreign Exchange 7.18
- Interest Rate 6.17
- Premium Determination & Greeks 5.25
- Premium Sensitivity 5.25M
- Put Options (Long Put) 5.21B
- Put Options (Short Put) 5.23T
- Terminology 5.15B
- Types of underlying assets 5.17B
Ordinary Shares 3.21M
Organisations - value added 1.18T
Overhead Allocations 4.28B
Over-the-counter products (OTC) 5.8M

Partnerships 3.28M
Participating Forward (FX) 7.26
PayBack Method 4.16T
Pasminco - Reasons of collapse Ans 1.3B 7.31
Placements 3.23M
Point (PIP) 7.7B
Portfolio diversification techniques 2.13T
Position Management 1.20
Position taking 1.14
Preferences Shares 3.25M
Preferences Shares - Cost (Valuation) 4.12B
Present Value Index 4.18B
Pre-settlement Risk 2.12M
Price marking and taking 1.20T
Profit Centre 1.18M 1.19B 1.22
Profit Centre - Characteristics 1.22B
Project Financing 3.19M
Project Risk Calculation 4.24
Project Team Function Read 2.1.1
Project with different lives - Calculation 4.26B
Promissory Notes 3.11
Public Fund Raising 3.31
Public Issue Ans 4.9M
Pure Play Technique (WACC) 4.24M

Q
Qualitative Factors 4.6
Quantitative Factors 4.7M
Quotation Conventions - FX 7.5B

Request for Information (RFI) 2.27M

Request for Proposal (RFP) 2.27B 2.28T
Right issues 3.23T Ans 4.9M
Risk Analysis 2.5B
Risk appetite 1.13B
Risk Assessment & priorty setting 2.6T Read 2.1.2
Risk Altering Projects 4.24B
Risk averse 1.14T
Risk Committee - Role 1.14B
Risk Identification 2.5M 7.29
Risk Management Plan (RMP) 2.7T
Risk Management Process Read 2.1.1
Risk Measurement (FX) 7.29
Risk-neutral 1.14T
Risk Policy & Procedure 2.7
Risk Treatment 2.6M

Sarbanes-Oxley Act (SOA) 1.12B

Security Market Line (SML) 4.11T
Segment markets App 3.3
Sensitivity Analysis 1.5T 1.8B 6.6T
Settlement Risk Read 7.1.2
Side Effects 4.28B
Sole Trader 3.28T
Sophisticated Investor - s 709 3.23B
Source of Funds 3.10
Speculation 1.22M
Speculative Investment 5.4T
Spot Interest Rate App 3.1
Spread - FX 7.10T
Straight-through-processing (STP) 2.23B
Strategic Implementation 7.30T
Subsidised Borrowing 4.37B
Sunk Cost 4.28M
Swap
- Commodity Swaps 5.14B
- Cross Currency Swap (CCY) 5.11M
- Foreign Exchange Swap 7.17M
- Interest Rate Swap 5.8B 6.14B
- Pricing of Interest Rate Swap 5.10M
- Settlement of Cross Currency Swap 5.12M
- Settlement of Interest Rate Swap 5.10B
Swaptions - Interest Rate 6.21
Systematic Risk (Market Risk) 4.9B

Tax Shields 4.28B

Technology advance 2.8B 2.23B
Temporal Simulation Approach 2.13B
Testing & Verification 2.9T
Term Currency 7.5B
Term Loans 3.13B
Trade Bills 3.10M
Treasurer - responsibilities & obligations 1.12 1.15
Treasury Function 1.17B
Treasury Management System (TMS) 2.25B 2.26
Treasury Management System (TMS) - Procedure Ans 2.3
Treasury Management System (TMS) - Summary 2.28B
Treasury Operation - Centralisation VS Decentralisation 1.28
Treasury Risk & Control 2.9B
Treasury Risk Management Framework 1.31 1.32T
Treasury Type 1.24B
- Active 1.26B
- Reactive 1.25B
- Static 1.25 1.26
Trust Deed 3.16M

Unsecured Notes 3.17T

Unsystematic Risk 4.9B
US Commercial Paper (CPs) 3.21T

Value-at-risk (VAR) technique 2.13T

Variance of returns (Formula) 1.8T
Venture Capital 3.22T
W

Weight Average Cost of Capital (WACC) 4.21

Working Capital Management 1.28B 3.7 4.28M
- Factoring 3.7B
- Factoring (Advantages & Disadvantages) Ans 3.1
- Funding Gap 3.8B
- Measurement 3.8M
- Strategies 3.7

Yield Curve App 3.1

Module 1

1) Expected Return (P 1.7B)

= (Return A * Probability A) + (Return B * Probability B) + …

2) The Variance of returns (P 1.8T)

= (Return - Expected Return) ^ 2 * Probability

while, Expected return = Answer in Formula 1

= Square root of the answer above

3) Probability of return less than 0 (P. 18.M)

= (Expected Return) / (Standard variation of Return)

= (Answer in 1 / Answer in 2)
= Round the answer to the nearest $0.1, then check the table at appendix 1.1, vertical = 0 column

Module 3

1) Current Ratio (P 3.4)

= Current Asset / Current Liabilities

2) Quick Ratio

= (Current Assets - Inventory) / Current Liabilities

3) Net Operating Cash Flow

= Net income - Depreciation or Amortisaton + Change in Debtors / Creditors

4) Free Cash Flow

= Net Operating CF - New invested capital (Investment)

While "Net Operating Cash Flow" = Answer in 3

5) Accounts Receivable Period (P 3.8)

= Accounts Receivable / Average Day Sales

While Net Annual Sales / 365 = Average Day Sales
6) Accounts Payable Period

= Accounts Payable / Average Days Cost of Goods Sold (COGS)

While Average Days COGS = Annual COGS / 365

7) Work-in-Process (WIP) Period

= WIP / Average Days Sales

While Average Days Sales = Net Annual Sales / 365

8) Pricing of Bills of Exchange, Promissory Notes and Government Securities (P 3.12M)

= (Face Value of Bill) / 1 + { (f / 365) * i }

While, f = Number of days to maturity; i is the Simple Interest per annum

Module 4

1) Valuation / Price of a Bond (P 4.8)

= ( Face Value * Coupon Rate) * [ 1 - ( 1 + Current Market Yield % ) ^ - n]

+ FV * ( 1 + Current %) ^ - n
Current Market Yield %

Note: If coupon paid semi annually, remember n * 2, Coupon % and Market Yield % / 2

2) After-Tax Cost of Debt

= Kd * ( 1 - Corporate Tax Rate)

3) Cost of Debt (Study Guide Slide 18)

Price of Bond = (Face Value + ( FV * Coupon %)) / ( 1 + Cost of debt)

4) Valuation of Mortgage (Ans 4.1, P. 4.23)

Step 1 = Calculate Annuity (Annual Repayment)

= (Value of Mortgage * Mortgage rate) / [ 1- ( 1 + Mortgage Rate ) ^ - n
While n = Years remaining until maturity

Step 2 = Calculate Present Value of Mortgage

= A * ( 1 - ( 1 + Current Market Mortgage Rate) ^ - n) / Current Market Mortgage Rate
Whilw A = Annuity (Answer in Step 1), n = years remaining until maturity

5) Capital Asset Pricing Model (CAPM) - Cost of Equity (P 4.10M)

= Risk-free Rate + ( Company's Beta * Market Risk Premium %)

While "Market Risk Premium" = Expected Return on Portfolio - Risk Free Rate of Interest

6) Cost of Preferences Shares (P 4.12B)

Current Market Price of Preference Shares (P) = Value of Annual Dividend / Current Market Cost of Preference Shares or
Required Return on Preference Shares

7) Accounting Rate of Return (ARR) (P 4.15)

Step 1 : Calculate Depreciation of the project asset

Step 2 : Calculate Annual Net Profit = Net Cash Inflow - Expenses (Incl. Depreciation)
Step 3 : Calculate ARR = Annual Net Profit / Initial Cash Outlay
Step 4 : Compare the ARR with the predetermined ARR "cut-off rate"

8) Payback Method (P 4.16)

= Initial Cash Outlay / Annual Net Cash Inflow

9) Net Present Value Method (P 4.16)

= {Annuity * [ 1 - ( 1 + r ) ^ - n ] / r } - Initial Cash Outflow

10) Present Value Index ( P 4.18B)

= (PV of Net Cash Inflow / Initial Cash Outlay)

11) Weighted Average Cost of Capital (WACC) (P. 4.21)

= Kd * (D/V) + Kp * (P/V) + Ke * (E/V)

while Kd = Cost of Debt , Kp = Cost of Preference Shares, Ke = Cost of equity

D = MV of Debt, E = MV of Equity, P = MV of preference shares
V = D+E+P
12) After Tax WACC ( P 4.33)

= Kd ( 1 - Tax Rate) (D/V) + Kp * (P/V) + Ke * (E/V)

13) Project with Different Risk (use other company's beta & Debt : Equity Ratio) ( P 4.25)

Step 1 = Calculate "Cost of Equity" using CAPM

Ke = Risk Free Rate + Other Coy's Beta * Risk Free Premium

Step 2 = Calculate Ke*(Systematic Risk of portfolio)

Ke = Ke* + ( 1 - Tax Rate ) * ( Ke* - Risk free rate) * (Other Coy's D / E)
while D = Debt Ratio , E = Equity Ratio (Both Other coy)

Step 3 = Calculate Ke (Own Coy's Intended Debt Level)

Ke = y + ( 1 - Tax Rate) * (y - Risk free rate) * (Your own coy's D / E)
while y = Answer in Step 2, D = Own coy's Debt Ratio, E = Own Coy's Equity Ratio

Step 4 = Calculate WACC

WACC = Risk free rate ( 1 - Tax rate) (Own Coy's D / V) + y ( Own Coy's E / V)
while y = Answer in Step 3, D = Own Coy's Debt Ratio, E = Own Coy's Equity Ratio, V = D + E

14) Project With Different Lives (Lowest Common Life Method) (P 4.26)

Step 1 = Calculate the NPV of each project separtely (Refer to NPV Calculation above)

Step 2 = Choose a Common Multiple Life for projects

Step 3 = Calculate NPV of the series of repetition

For example, if Project A Life = 3 years; Project B Life = 4 years
Then Common NPV of Project A = NPV of A + NPV of A * ( 1 + r )^ -3 + NPV of A * ( 1 + r ) ^ -6
+ NPV of A * ( 1 + r ) ^ -9 (Repeated 4 times, which is the Lowest common multiple with Project B)

Common NPV of Project B = NPV of B + NPV of B * ( 1 + r )^ -4 + NPV of B * ( 1 + r ) ^ -8

(Repeated 3 times, which is the Lowest Common Multiple with Project B)

15) Project with Different Lifes ( Continuous Replacement Method ) (P 4.27, S.G. Slide 58)

Step 1 = Calculate the NPV of each project

Step 2 = Calculate the EAA of each project

NPV = A * [ 1 - ( 1 + r ) ^ -n ] / r
A = r * NPV / [ 1 - ( 1 + r ) ^ -n ]
while r = Discounted rate , n = Lowest common multiple in period

Step 3 = Calculate Perpetuity of each project

Project A = Answer in Step 2 / r
while r = Discounted rate

16) Depreciation Tax Shields ( Study Guide Slide 66)

Year 1 = ( Depreciation rate * Book Value ) * Tax rate

Year 2 = ( Depreciation rate * ( Book Value - Depreciation at year 1) * Tax Rate)

17) Tax on the disposal of assets (Capital Gains Tax) (SG Slide 67)

= ( Sales Proceeds - Carried Down Book Value ) * Tax Rate

18) Inflation Effects (Fishers' Effect) (P 4.30B)

( 1 + n ) = ( 1 + r ) ( 1 + E(i) )
while n = nominal interest rate, r = real interest rate, E(i) = Expected rate of inflation

19) Interest Coverage Ratio (Ans 4.9)

= EBIT / Interest Charges

Module 5

1) Forward Rate Agreement (FRA) Pricing (P 5.7B)

= { 1 + ( Long Term Rate / Period ) / 1 + (Short Term Rate / Period ) - 1 * 100 * 365 / Days in Forward Period

2) FRA Settlement Calculation (P 5.8)

PV = Principal / ( 1 + r1 ( n / 365 ) ) - Principal / ( 1 + r2 ( n / 365 ))

3) Forward Exchange Contract (FECs) (P 5.13M)

Spot Rate * [ 1 + ( It * D / Basis Year) ]
[ 1 + ( Ib * D / Basis Year ) ]
while It = Interest rate of term currency, Ib = Interest rate of base currency
D = Number of days in the period, Basis Year = 360 days for US & Euro, 365 days for AUD
Spot = Spot Exchange Rate

4) Option - Long Call (P 5.18)

Pay-off = Max ( Spot Price at maturity - Exercise Price , 0 )
If answer is below 0 (negative), it becomes 0

Profit = Max ( Spot Price at maturity - Exercise Price, 0 ) - Call Option Premium

5) Option - Short Call (P 5.19)

Pay-off = - Max ( Spot Price at maturity, 0 )

If answer is negative, then 0, if answer is positive, then negative

Profit = Call Option Premium - (Spot Price at maturity - Exercise Price , 0 )

6) Option - Long Put (P 5.21)

Pay-off = Max ( Exercise Price - Spot Price at maturity, 0 )

If answer is below 0 (negative), it becomes 0

Profit = Max ( Exercise Price - Spot Price at maturity, 0 ) - Option Premium

7) Option - Short Put (P 5.23)

Pay-off = - Max ( Exercise Price - Spot Price at maturity, 0 )

If answer is negative, then 0, if answer is positive, then negative

Profit = Put Option Premium - Max ( Exercise Price - Spot Price at maturity, 0 )

Module 6

1) Forward Rate (P 6.7)

= { ( 1 + rn) ^ N / ( 1 + rn) ^ N - 1 }

2) Buyer (Long) Pay-off on FRA

= (BBSW - FRA Rate)
= (PV Notional Value @ FRA Rate - PV Notional Value @ BBSW Rate)

3) Seller (Short) Pay-off on FRA

= (FRA Rate - BBSW)
= (PV Notional Value @ BBSW Rate - PV Notional Value @ FRA Rate)
4) Price of Long (Buyer) 90 Day BAB Futures
= (100 - BBFR)
where BBR = ( 1 - Bank Bill Future Price) or (Market Interest Rate or Floating Rate)
where BBFR = ( 1 - Price of 90 day BAB) or (Future Agreed Rate or Fixed Rate)

5) Buyer (Long) Pay-off on Interest Rate Futures

Buyer Pay-off = (90 day BBR - 90 day BBFR)
Buyer Pay-off = (PV (Notional Principal @ 90 day BBR) - PV (Notional Principal @ 90 Day BBFR)

6) Seller (Short) Pay-off on Interest Rate Futures

Seller Pay-off = (90 day BBFR - 90 day BBR)
Seller Pay-off = (PV (Notional Principal @ 90 Day BBFR) - PV (Notional Principal @ 90 day BBR))

7) Interest Rate Swaps - Fixed Rate Payers' Pay-off

= BBSW - Swap Rate

8) Interest Rate Swaps - Floating Rate Payer's Pay-off

= Swap Rate - BBSW

9) Interest Rate Options - Long Call (Use for borrowers)

Buyer Pay-off cap = Max (BBSW - Cap Rate , 0 )
Profit Long Cap = Pay-off Cap - Cap Premium = Max (BBSW - Cap Rate, 0) - CP
If answer positive = receipts, negative = Option expired / No Payment

10) Interest Rate Options - Short Call

Seller Pay-off = - Max (BBSW- Cap Rate, 0 )
Seller Profit = CP - Max (BBSW - Cap Rate, 0 )

11) Interest Rate Option - Long Put ( Buyer)

Buyer Pay-off Long Flooe = Max (Floor rate - BBSW, 0 )
Profit Long Floor = Pay off Floor - Floor Premium (FR) = Max (Floor Rate -BBSW, 0) - FP
If answer positive = receipts, negative = Option expired / No Payment

12) Interest Rate Option - Short Put (Seller)

Seller Pay-off Short Floor = -Max (Floor Rate - BBSW, 0)
Progit Short Floor = FP - Max (Floor Rate - BBSW, 0)

13) Interest Rate Collars - Long Collar (Buyer) (P 6.20)

Pay-off Long Collar = Max (BBSW - Cap Rate , 0 ) - Max ( Floor Rate -BBSW, 0 )
Profit Long Collar = { Max (BBSW - Cap Rate, 0 ) - Max (Floor Rate - BBSW, 0) } - (CP - FP)
while If the collar is "zero cost collar", then CP = FP

14) Interest Rate Swaptions - Long Payer Swaption ( P 6.21)

Pay-off = Max (Swap Rate - Swaption Rate , 0)
Profit = Max ( Swap Rate - Swaption Rate, 0) - Payer Swaption Premium
while Swap Rate = Variable, Swaption Rate = Fixed

15) Interest Rate Swaptions - Long Receiver Swaption

Pay-off = Max (Swaption Rate - Swap Rate, 0)
Profit = Max (Swaption Rate - Swap Rate, 0) - Receiver Swaption Premium
while Swap Rate = Variable, Swaption Rate = Fixed
1 + Current %) ^ - n
ost of Preference Shares or
Forward Period