Susan warned herself not to ______ despair. She must stand up and fight.

developing countries. Professor James West from North America argued that one of the key needs for developing

countries was to implement rigorous systems of corporate governance to underpin investor confidence in businesses

in those countries. If they did not, he warned, there would be no lasting economic growth as potential foreign inward

investors would be discouraged from investing.

In reply, Professor Amy Leroi, herself from a developing country, reported that many developing countries are

discussing these issues at governmental level. One issue, she said, was about whether to adopt a rules-based or a

principles-based approach. She pointed to evidence highlighting a reduced number of small and medium sized initial

public offerings in New York compared to significant growth in London. She suggested that this change could be

attributed to the costs of complying with Sarbanes-Oxley in the United States and that over-regulation would be the

last thing that a developing country would need. She concluded that a principles-based approach, such as in the

United Kingdom, was preferable for developing countries.

Professor Leroi drew attention to an important section of the Sarbanes-Oxley Act to illustrate her point. The key

requirement of that section was to externally report on – and have attested (verified) – internal controls. This was, she

argued, far too ambitious for small and medium companies that tended to dominate the economies of developing

countries.

Professor West countered by saying that whilst Sarbanes-Oxley may have had some problems, it remained the case

that it regulated corporate governance in the ‘largest and most successful economy in the world’. He said that rules

will sometimes be hard to follow but that is no reason to abandon them in favour of what he referred to as ‘softer’

approaches.

(a) There are arguments for both rules and principles-based approaches to corporate governance.

Required:

(i) Describe the essential features of a rules-based approach to corporate governance; (3 marks)

Susan Baker is a new hire at Crinson Bank’s Chicago office. She has joined the risk arbitrage desk where she will be training to take advantage of price discrepancies in the U.S. T-note futures and spot markets.

Her managing director, Gerald Bigelow, has asked her to calculate parameters for potential arbitrage opportunities for the bank given current market conditions. At the time he asked the question, the cheapest-to-deliver T-notes were at par, with a coupon rate of 8.5 percent. When trading futures, the risk arbitrage desk borrows at 12 percent and lends at 4 percent.

Looking at the calendar, Baker calculates that there are 184 days to the first coupon payment and 181 days from the first coupon payment to the second. Any interest accrued will be paid when the T-note is delivered against the futures contract, but Bigelow asks Baker not to concern herself in the calculations with the impact of reinvesting the coupons or with transaction costs.

To get a feel for the market, Baker first prices a 6-month futures contract that has 184 days to expiration in a “simplified scenario.” She decides to use the same interest rate for borrowing and lending, taking the average of the bank’s borrowing and lending rates. Calculating the futures price under these simplified assumptions, Baker tells Bigelow that the futures contract should trade at 99.7059. Bigelow explains that the futures price is below par even though the spot price is at par because of the benefit to a short seller of receiving the T-note coupon payments.

Having calculated the futures price in the “simplified scenario,” Baker modifies it to reflect the bank’s current borrowing and lending rates, and calculates the corresponding no-arbitrage bands. She tells Bigelow that the lower band will be at 97.7468. Bigelow checks her calculations, confirming that the higher band will be at 101.6294.

Once they know the no-arbitrage bands for current market conditions, Baker and Bigelow check the screen. They see that the market price of the futures contract for which they’ve been calculating no-arbitrage bands is 103. Together, they execute Baker’s first arbitrage play.

Part 4)

If the T-notes that Baker priced in the “simplified scenario” were not the cheapest to deliver, and the cheapest-to-deliver note had a conversion factor of 1.07, what would be the no-arbitrage futures price？

A)106.6853.

B)137.6041.

C)93.1831.

D)98.6359.

Susan Baker is a new hire at Crinson Bank’s Chicago office. She has joined the risk arbitrage desk where she will be training to take advantage of price discrepancies in the U.S. T-note futures and spot markets.

Her managing director, Gerald Bigelow, has asked her to calculate parameters for potential arbitrage opportunities for the bank given current market conditions. At the time he asked the question, the cheapest-to-deliver T-notes were at par, with a coupon rate of 8.5 percent. When trading futures, the risk arbitrage desk borrows at 12 percent and lends at 4 percent.

Looking at the calendar, Baker calculates that there are 184 days to the first coupon payment and 181 days from the first coupon payment to the second. Any interest accrued will be paid when the T-note is delivered against the futures contract, but Bigelow asks Baker not to concern herself in the calculations with the impact of reinvesting the coupons or with transaction costs.

To get a feel for the market, Baker first prices a 6-month futures contract that has 184 days to expiration in a “simplified scenario.” She decides to use the same interest rate for borrowing and lending, taking the average of the bank’s borrowing and lending rates. Calculating the futures price under these simplified assumptions, Baker tells Bigelow that the futures contract should trade at 99.7059. Bigelow explains that the futures price is below par even though the spot price is at par because of the benefit to a short seller of receiving the T-note coupon payments.

Having calculated the futures price in the “simplified scenario,” Baker modifies it to reflect the bank’s current borrowing and lending rates, and calculates the corresponding no-arbitrage bands. She tells Bigelow that the lower band will be at 97.7468. Bigelow checks her calculations, confirming that the higher band will be at 101.6294.

Once they know the no-arbitrage bands for current market conditions, Baker and Bigelow check the screen. They see that the market price of the futures contract for which they’ve been calculating no-arbitrage bands is 103. Together, they execute Baker’s first arbitrage play.

Part 6)

If the bank enters an arbitrage play involving the cheapest-to-deliver Treasury bond, which of the following statements is INCORRECT？

A)The short position decides which bond to deliver.

B)The arbitrage play is no longer risk-free if the bank has a long position in the cheapest-to-deliver bond.

C)The long position has the advantage in the arbitrage play.

D)The cheapest-to-deliver bond may change during the life of the contract.

Susan Baker is a new hire at Crinson Bank’s Chicago office. She has joined the risk arbitrage desk where she will be training to take advantage of price discrepancies in the U.S. T-note futures and spot markets.

Her managing director, Gerald Bigelow, has asked her to calculate parameters for potential arbitrage opportunities for the bank given current market conditions. At the time he asked the question, the cheapest-to-deliver T-notes were at par, with a coupon rate of 8.5 percent. When trading futures, the risk arbitrage desk borrows at 12 percent and lends at 4 percent.

Looking at the calendar, Baker calculates that there are 184 days to the first coupon payment and 181 days from the first coupon payment to the second. Any interest accrued will be paid when the T-note is delivered against the futures contract, but Bigelow asks Baker not to concern herself in the calculations with the impact of reinvesting the coupons or with transaction costs.

To get a feel for the market, Baker first prices a 6-month futures contract that has 184 days to expiration in a “simplified scenario.” She decides to use the same interest rate for borrowing and lending, taking the average of the bank’s borrowing and lending rates. Calculating the futures price under these simplified assumptions, Baker tells Bigelow that the futures contract should trade at 99.7059. Bigelow explains that the futures price is below par even though the spot price is at par because of the benefit to a short seller of receiving the T-note coupon payments.

Having calculated the futures price in the “simplified scenario,” Baker modifies it to reflect the bank’s current borrowing and lending rates, and calculates the corresponding no-arbitrage bands. She tells Bigelow that the lower band will be at 97.7468. Bigelow checks her calculations, confirming that the higher band will be at 101.6294.

Once they know the no-arbitrage bands for current market conditions, Baker and Bigelow check the screen. They see that the market price of the futures contract for which they’ve been calculating no-arbitrage bands is 103. Together, they execute Baker’s first arbitrage play.

Part 5)

How much does Baker expect to earn in profits on her first arbitrage play (in dollars per contract, ignoring transaction costs and any reinvestment of coupon payments)？

A)$523,000.

B)$1,371.

C)$40,003.

D)$370.

Susan Baker is a new hire at Crinson Bank’s Chicago office. She has joined the risk arbitrage desk where she will be training to take advantage of price discrepancies in the U.S. T-note futures and spot markets.

Her managing director, Gerald Bigelow, has asked her to calculate parameters for potential arbitrage opportunities for the bank given current market conditions. At the time he asked the question, the cheapest-to-deliver T-notes were at par, with a coupon rate of 8.5 percent. When trading futures, the risk arbitrage desk borrows at 12 percent and lends at 4 percent.

Looking at the calendar, Baker calculates that there are 184 days to the first coupon payment and 181 days from the first coupon payment to the second. Any interest accrued will be paid when the T-note is delivered against the futures contract, but Bigelow asks Baker not to concern herself in the calculations with the impact of reinvesting the coupons or with transaction costs.

To get a feel for the market, Baker first prices a 6-month futures contract that has 184 days to expiration in a “simplified scenario.” She decides to use the same interest rate for borrowing and lending, taking the average of the bank’s borrowing and lending rates. Calculating the futures price under these simplified assumptions, Baker tells Bigelow that the futures contract should trade at 99.7059. Bigelow explains that the futures price is below par even though the spot price is at par because of the benefit to a short seller of receiving the T-note coupon payments.

Having calculated the futures price in the “simplified scenario,” Baker modifies it to reflect the bank’s current borrowing and lending rates, and calculates the corresponding no-arbitrage bands. She tells Bigelow that the lower band will be at 97.7468. Bigelow checks her calculations, confirming that the higher band will be at 101.6294.

Once they know the no-arbitrage bands for current market conditions, Baker and Bigelow check the screen. They see that the market price of the futures contract for which they’ve been calculating no-arbitrage bands is 103. Together, they execute Baker’s first arbitrage play.

Part 3)

Regarding Baker’s and Bigelow’s statements about the no-arbitrage bands, which is CORRECT？

A)Baker’s statement is correct and Bigelow’s statement is incorrect.

B)Baker’s statement is incorrect and Bigelow’s statement is incorrect.

C)Baker’s statement is correct and Bigelow’s statement is correct.

D)Baker’s statement is incorrect and Bigelow’s statement is correct.

Susan Baker is a new hire at Crinson Bank’s Chicago office. She has joined the risk arbitrage desk where she will be training to take advantage of price discrepancies in the U.S. T-note futures and spot markets.

Her managing director, Gerald Bigelow, has asked her to calculate parameters for potential arbitrage opportunities for the bank given current market conditions. At the time he asked the question, the cheapest-to-deliver T-notes were at par, with a coupon rate of 8.5 percent. When trading futures, the risk arbitrage desk borrows at 12 percent and lends at 4 percent.

Looking at the calendar, Baker calculates that there are 184 days to the first coupon payment and 181 days from the first coupon payment to the second. Any interest accrued will be paid when the T-note is delivered against the futures contract, but Bigelow asks Baker not to concern herself in the calculations with the impact of reinvesting the coupons or with transaction costs.

To get a feel for the market, Baker first prices a 6-month futures contract that has 184 days to expiration in a “simplified scenario.” She decides to use the same interest rate for borrowing and lending, taking the average of the bank’s borrowing and lending rates. Calculating the futures price under these simplified assumptions, Baker tells Bigelow that the futures contract should trade at 99.7059. Bigelow explains that the futures price is below par even though the spot price is at par because of the benefit to a short seller of receiving the T-note coupon payments.

Having calculated the futures price in the “simplified scenario,” Baker modifies it to reflect the bank’s current borrowing and lending rates, and calculates the corresponding no-arbitrage bands. She tells Bigelow that the lower band will be at 97.7468. Bigelow checks her calculations, confirming that the higher band will be at 101.6294.

Once they know the no-arbitrage bands for current market conditions, Baker and Bigelow check the screen. They see that the market price of the futures contract for which they’ve been calculating no-arbitrage bands is 103. Together, they execute Baker’s first arbitrage play.

Part 1)

Regarding Baker’s and Bigelow’s statements about the futures price in the simplified scenario:

A)Baker’s statement is correct and Bigelow’s statement is correct.

B)Baker’s statement is incorrect and Bigelow’s statement is correct.

C)Baker’s statement is incorrect and Bigelow’s statement is incorrect.

D)Baker’s statement is correct and Bigelow’s statement is incorrect.

Susan Baker is a new hire at Crinson Bank’s Chicago office. She has joined the risk arbitrage desk where she will be training to take advantage of price discrepancies in the U.S. T-note futures and spot markets.

Her managing director, Gerald Bigelow, has asked her to calculate parameters for potential arbitrage opportunities for the bank given current market conditions. At the time he asked the question, the cheapest-to-deliver T-notes were at par, with a coupon rate of 8.5 percent. When trading futures, the risk arbitrage desk borrows at 12 percent and lends at 4 percent.

Looking at the calendar, Baker calculates that there are 184 days to the first coupon payment and 181 days from the first coupon payment to the second. Any interest accrued will be paid when the T-note is delivered against the futures contract, but Bigelow asks Baker not to concern herself in the calculations with the impact of reinvesting the coupons or with transaction costs.

To get a feel for the market, Baker first prices a 6-month futures contract that has 184 days to expiration in a “simplified scenario.” She decides to use the same interest rate for borrowing and lending, taking the average of the bank’s borrowing and lending rates. Calculating the futures price under these simplified assumptions, Baker tells Bigelow that the futures contract should trade at 99.7059. Bigelow explains that the futures price is below par even though the spot price is at par because of the benefit to a short seller of receiving the T-note coupon payments.

Having calculated the futures price in the “simplified scenario,” Baker modifies it to reflect the bank’s current borrowing and lending rates, and calculates the corresponding no-arbitrage bands. She tells Bigelow that the lower band will be at 97.7468. Bigelow checks her calculations, confirming that the higher band will be at 101.6294.

Once they know the no-arbitrage bands for current market conditions, Baker and Bigelow check the screen. They see that the market price of the futures contract for which they’ve been calculating no-arbitrage bands is 103. Together, they execute Baker’s first arbitrage play.

Part 2)

Which of the following most accurately describes the arbitrage strategy that Baker and Bigelow executed？

A)Sell futures contract, use proceeds to buy asset, borrow difference, sell asset, buy back futures, and collect difference between finance charges and interest from asset.

B)Borrow funds, buy spot asset, buy futures, deliver asset against long futures, and repay loan and finance charges.

C)Borrow funds, buy spot asset, sell futures, collect accrued interest on spot asset, deliver asset against short futures, and repay loan with interest.

D)Short spot asset, lend proceeds from short sale, buy futures contract, collect principal and interest on loan, pay interest on short asset, take delivery of asset against futures, and replace short asset.

一If he________，he __________that food.

一Luckily he was sent to the hospital immediately.

A. was warned;would not take

B. had been warned;would not have taken

C. would be warned; had not taken

D. would have been warned; had not taken

A．has been warned

B．have been warned

C．has warned

D．have warned

A.A.

B.B.warned

C.C.have warned

D.D.have been warned

E.E.were warning