International Finance

Description

Need worksheet the following worksheet completed only 8 questions

1. Today’s settlement price on one CME Swiss franc futures contract is $0.9140/CHF. You have a short position in one contract. Refer to above Exhibit 7.3 for the futures contract size. Your performance bond account currently has a balance of $2,500. The next three days’ settlement prices are $0.9129, $0.9093, and $0.9064. Calculate the daily adjustment amount in the performance bond account from marking-to-market AND show the balance of the performance bond account at the end of each day.

 

A) Day 1:

 

 

 

B) Day 2:

 

 

C) Day 3:

 

 

 

 

2. Do problem 1 again assuming you have a long position in the futures contract and your bond balance is $2,500.

 

A) Day 1:

 

 

 

B) Day 2:

 

 

 

C) Day 3:

 

 

 

 

3. Using the quotations in the above Exhibit 7.3, calculate the face value of the open interest in the June and September 2013 Canadian dollar futures contract.

 

 

A) June Canadian dollar futures contract face value of open interest = _____________

 

 

 

B) September Canadian dollar futures contract face value of open interest = ___________

 

 

 

4. Using the quotations and contract size in the above Exhibit 7.3. You believe the spot price in September will be $0.9853 per AUD, (Note: the September 2013 Australian dollar futures contract has a price of $0.9458 per AUD).

 

A) What speculative position (long or short) would you enter into to attempt to profit from your beliefs? Explain rational.

 

 

 

 

 

B) Calculate your anticipated profits, assuming you take the speculative position in two contracts.

 

 

 

 

 

C) What is the size of your profit (loss) if the futures price (not your belief) is indeed an unbiased predictor of the future spot price and this price materializes?

 

 

 

 

 

5. Do problem 4 parts A, B & C again assuming you instead believe the September 2013 spot price will be $0.9176 per AUD.

 

 

A) What speculative position (long or short) would you enter into to attempt to profit from your beliefs? Explain rational.

 

 

 

 

 

 

B) Calculate your anticipated profits, assuming you take the speculative position in two contracts.

 

 

 

 

 

 

C) What is the size of your profit (loss) if the futures price (not your belief) is indeed an unbiased predictor of the future spot price and this price materializes?

 

 

6. Using the market data in the above Exhibit 7.6, show the net terminal value of a long position in one 132 Aug Euro European call contract at the following terminal spot prices (stated in US cents per euro cents) : 122, 125, 132, 137, 140. Ignore any time value of money effect.

 

Hint: The net terminal value of one call contract is:

 

{ Max [ ST – E, 0 ] – Ce } x €10,000 / unit ÷ 100¢, where €10,000 is the contract size of one euro contract.

 

A) At 122:

 

B) At 125:

 

C) At 132:

 

D) At 137:

 

E) At 140:

 

7. Using the market data in the above Exhibit 7.6, show the net terminal value of a long position in one 132 Aug Euro European put contract at the following terminal spot prices (stated in U.S. cents per euro cents) : 122, 125, 132, 137, 140. Ignore any time value of money effect.

Hint: The net terminal value of one put contract is:

 

{ Max [ E –ST, 0 ] – Pe } x €10,000 / unit ÷ 100¢, where €10,000 is the contract size of one euro contract.

 

A) At 122:

 

 

B) At 125:

 

 

C) At 132:

 

 

D) At 137:

 

 

E) At 140:

 

 

Chapter 8

 

8. Mini-Case JB Dollar Exposure

JB Feeds, a US-based feed firm, sold an entire cargo shipment of bird feed to its primary dealer in the U.K., Birds-R-Us. The shipment is set to arrive in three months and has billed £ 20 million payable due in three-months. Recent political changes and economic concerns are troubling to management at JB so they assigned JB’s treasury department to analyze the exchange rate risks.

 

Current spot exchange rate : £ 1.467 / $

3-month forward exchange rate : £ 1.5345 / $

3-month Put Premium on U.K. pounds: $ 0.02 / £

3-month Put Option on U.S. dollars Strike Price: $ 0.68 / £

Current 3-month U.S. interest rate: 2.7%

Current 3-month U.K. interest rate: 3.2%

 

(a) Compute the guaranteed dollar proceeds from the sale if hedge using a forward contract.

(b) If the treasurer decides to hedge using money market instruments, what action does JB Feeds need to take? What would be the guaranteed dollar proceeds from the sale in this case?

(c) If JB Feeds decides to hedge using put options on pounds, what would be the ‘expected’ dollar proceeds from the sale? Assume that JB’s treasurer regards the current forward exchange rate as an unbiased predictor of the future spot exchange rate.

(d) At what future spot exchange rate do you think JB Feeds will be indifferent between the option and money market hedge?

(e) At what future spot exchange rate do you think JB Feeds will be indifferent between the option and the forward?