Log in
Finance
1
answer
0
watching
304
views
6 Feb 2019

1.Speculation: Today is January 24 and you go long 1 real March futures at an opening trade price of $0.6423 per real with an initial margin of $1,500. The settlement prices for January 24, 25 and 26 are $0.6393, $0.6441 and $0.6496 per real respectively. On January 27 you close out your contract at $0.6483 per real.

(a) Calculate your daily account position and

(b) Find the ending account balance on January 27 at liquidation

(size of contract = real 125,000)

2. Futures Hedging: On March 15, a US firm is planning to import Russian vodka worth 5 million rubles due on April 15. Firm decides to hedge its payables position by using June ruble futures traded on CME. The spot rate on March 15 is US $0.0330/ruble and the June futures price on March 15 is at $ 0.0300/ruble. On April 15, the spot rate is $0.0380 / ruble while the June futures is $ 0.0350 / ruble.

(a) Calculate the net gain or loss from the futures?

(b) What is the net cost to the importer?

3. Options Hedging: On March 15, a US firm is planning to import Indian software worth Rs. 1 million due on April 15 (one day later). Firm decides to hedge its payables position by using OTC April 15 call option on the rupee.

The spot rate is US $0.0220/rupee and the April call for X= $ 0.0200 / rupee is quoted at $0.0010/rupee. On April 15, the spot rate settles at $ 0.0190 / rupee.

What is the cost of the call option in dollars?

Do you exercise the call or not?

What is the dollar payables from options hedging?

Watch
1
answer
0
watching
304
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Hubert Koch
Hubert KochLv2
8 Feb 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

3.In early April, a U.S. Company is expecting to receive 1,250,000 Euros in June from its European customers, and wants to hedge against a fall in the value of the Euro relative to the U.S. dollar in June.

At this time the spot exchange rate Euro is $1.086 USD. The CME Group future settle rate for June Euro FX futures contacts is 1 Euro = $1.091 USD, with each futures contract for 125,000 Euros per contract.

a. What position and how many contracts should the financial manager take for the hedge? Explain why. (hint # contracts = Amount of Euros Hedging / 125,000 Euros per contract),

Type of Position _____________ Why this Position_____________

Number of Contracts_______________________________

b.Suppose in June the spot rate for the Euro rises instead to $1.1946 USD and Calculate the spot opportunity loss or gain for the company and the futures gain or loss. What is the net hedging result?

Spot Gain or Loss ____________ Futures Gain or Loss ___________

Net Hedging Result _____________ (Futures Gain or Loss – Spot Gain or Loss)

c. Would the U.S. Company have done better getting options on the Euro futures contract instead for this hedge? Explain why or why not.

Please show work so I could understand how you got the answer.

On March 31, a firm learns that it will have additional funds available July 31. It will use the funds to purchase $6,000,000 par value of the USTA 8.5% bonds maturing in 20 years. Interest is paid semiannually on June 1 and December 1. The bonds are rated A2 and are selling for 65.875 per 100 and yielding 10.2%. The modified duration is 6.4. The firm is considering hedging the anticipated purchase with November T‐bond futures. The futures price is 61.25. The futures contract has a coupon of 10.75% and matures in 25 years. It has determined that the implied yield on the futures contact is 9.40% and the modified duration of the contract is 7.1. On July 31, the bonds are priced at 69.375. The November futures price is 66.50. The firm believes that the USTA bond yield will change 1 point for every 1 point change in the yield on the bond underlying the futures contract. Face value underlying the T‐bond contract is $100,000.

a. Will they be exposed to an increase or decrease in the price of the bonds?

b. On March 31, how much are the spot bonds worth?

c. On July 31, how much are the spot bonds worth?

d. How much did the bond position increase or decrease (must state if increase or decrease and the amount)?

e. On March 31, how much is one futures contract worth? How many futures contracts are needed (round up)? Do you buy or sell the futures contracts?

f. On July 31, does the firm buy or sell the futures contracts? How much is one futures contract worth?

g. Is there is a gain or loss on the futures contract? If so, how much is the gain or loss on all the contracts combined?

h. On July 31, what is the net gain or loss on the combined bond position and the futures contracts (must state if gain or loss and the amount)?

Related Documents

FIN 501
Final Exam
Study Guide
FIN 501 Study Guide - Futures Contract, Financial Instrument, Spot Contract
beigefish258
FIN 401 Lecture Notes - Lecture 1: Dutch Auction, Underwriting, Corporate Tax
ceruleanpig890

Weekly leaderboard

Home
Homework Help 3,900,000
Finance 370,000
Start filling in the gaps now
Log in