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29 Sep 2018

2. On August 6, you go long one IMM yen futures contract at an opening price of $0.00815 with a performance bond of $4,780 and a maintenance performance bond of $3,600. The settlement prices for August 6, 7, and 8 are $0.00793, $0.00855, and $0.00898, respectively. On August 9, you close out the contract at a price of $0.00852. Your round-trip commission is $33.24. a. Calculate the daily cash flows on your account. Be sure to take into account your required performance bond and any performance bond calls b. What is your cash balance with your broker on the morning of August 10?

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Reid Wolff
Reid WolffLv2
30 Sep 2018

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On the morning of Monday, August 21, you purchased one futures contract for 100,000 Canadian dollars at a rate of 0.7 USD/CAD. You deposited 7000 USD into your margin account, and your broker requires 5000 USD as the maintenance margin. The subsequent settlement prices are shown in the table below. What are the daily cash flows from marking to market? What are the daily cash balances in your margin account (after the margin call and new deposits)? When do you receive a margin call and how much do you deposit into your account?

August 21 22 23 24 25 28 29

Futures Rate 0.71 0.7 0.72 0.71 0.69 0.68 0.66

30

0.63

Daily cash flow

Cash balance (after margin call)

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?

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