Tony Begay at Saguaro Funds. Tony Begay, a currency trader for Chicago-based Saguaro Funds, uses the following futures quotes on the British pound (£) to speculate on the value of thepounda. If Tony buys 5 June pound futures, and the spot rate at maturity is $1.3981/, what is the value of her position?b. If Tony sells 12 March pound futures, and the spot rate at maturity is $1.4559/E, what is the value of her position?c. If Tony buys 3 March pound futures, and the spot rate at maturity is $1.4550, what is the value of her position?d. If Tony sells 12 June pound futures, and the spot rate at maturity is $1.3981/C, what is the value of her position?CIDa. If Tony buys 5 June pound futures, and the spot rate at maturity is $1.3981/2, what is the value of her position?The value of Tony's position is $(Round to the nearest cent. Use a minus sign if value is negative) If TonThe valuData tableomOpen1.42461.416415 31.398 172, what is the value of her position?(Click on the icon to import the table into a spreadsheet.)British Pound Futures, US$/pound (CME)MaturityMarchJuneLowChangeHighSettle1.4268 1.4214 1.4228 0.00321.41881.41461.41620.0030PrintDoneContract = 62,500 poundsOpen InterestHigh1.47001.455025,605809-X

a. Number of contracts bought = 5 Spot rate at maturity =$1.3981 /£1Forward rate = $1.4162/£The…

Tony Begay at Saguaro Funds. Tony Begay, a currency trader for Chicago-based Saguaro Funds, uses the following futures quotes on the British pound (C) to speculate on the value of the pound a. If Tony buys 5 June pound futures, and the spot rate at maturity is $1.3961, what is the value of her position? b. If Tony sells 12 March pound futures, and the spot rate at maturity is $1.4559%, what is the value of her position? e. If Tony buys 3 March pound futures, and the spot rate at maturity is $1.4550, what is the value of her position? d. If Tony sells 12 June pound futures, and the spot rate at maturity is $1.3081/E, what is the value of her position? a. If Tony buys 5 June pound futures, and the spot rate at maturity is $1.3981/8, what is the value of her position? The value of Tony's position is $(Round to the nearest cent. Use a minus sign if value is negative)

Tony Begay at Saguaro Funds. Tony Begay, a currency trader for Chicago-based Saguaro Funds, uses the following futures quotes on the British pound (C) to speculate on the value of the pound a. If Tony buys 5 June pound futures, and the spot rate at maturity is $1.3961, what is the value of her position? b. If Tony sells 12 March pound futures, and the spot rate at maturity is $1.4559%, what is the value of her position? e. If Tony buys 3 March pound futures, and the spot rate at maturity is $1.4550, what is the value of her position? d. If Tony sells 12 June pound futures, and the spot rate at maturity is $1.3081/E, what is the value of her position? a. If Tony buys 5 June pound futures, and the spot rate at maturity is $1.3981/8, what is the value of her position? The value of Tony's position is $(Round to the nearest cent. Use a minus sign if value is negative)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Today is September 1. A futures contract on crude oil expiring on December 20 of the same year has a futures price of $44.70. The volatility on the futures contract is 23%, and the continuously compounded risk-free rate is 2%. Assume that there are 365 days in a year. a. What is the Black model price of a European call option on this futures contract, expiring on December 20 and with an exercise price of $46? b. What is the Black model price of a European put option on this futures contract, expiring on December 20 and with an exercise price of $50?
(a) The transferring of risk onto the clearing house is not something unique to futures trading. In fact, most of financial intermediaries such as insurance companies, finance companies and bank take on risk transferred to them and manage these risks. Based on the above statement, discuss the TWO (2) types of margins in derivatives markets. (b) You as a farmer have gone short 15 March Cocoa futures contracts. The 5-day period using hypothetical futures settlement prices. On the day 0 which both parties enter the contract. Given the following information, determine the daily marking-to-market adjustment to both you and the counterparty account. (Assuming same total value) Contract size = 10 tons per contract Initial margin = 10 percent of total value Maintenance margin = 70 percent of initial margin
a. You notice that the 9-month risk free interest rates in the UK is 4% per annum withcontinuous compounding and the US rate is 7% per annum, with continuous compounding.The spot price of the Pound Sterling is $0.2500. Assume the US is your home country.Answer the following:i. What is the no-arbitrage price of the 9-month futures contract? ii. You observe that the 9-month futures price in the market is $0.2775. State why anarbitrage opportunity exists and explain how you would take advantage of thisarbitrage opportunity.(Hint: Your answer should include your general strategy in broad terms and your step-bystep approach to exploiting the arbitrage opportunity using numbers from this question)
1. Suppose trader A sells a E-miniS&P 500 indexDecember 2021 expiry (ESZ1)futures contract to trader Bon May 7 , 2021. Suppose the price declines and trader A liquidates their position by buying a futures contract fivedayslateron May12, 2021. Does trader A make a profit? Does trader B have to make a loss? Explain your answer. 2. Consider a large Australian cotton farmer who has just planted her crop. Once grown, she plans to export her production to China: Suppose the Australian cotton farmer goes short on a cotton no. 2 futures contract on the ICE exchange. Go to theice.com and look up the contract. What is the contract size? Is the contract settled with physical delivery or cashsettlement?
Suppose you are the treasurer of a U.S. multinational firm that wants to hedge the foreign exchange risk associated with your firm's sale of equipment to a Swiss firm worth CHF1,000,000. The receivable is due in six months. You want to ensure that Swiss francs are worth at least $0.70 when the francs are received so you want a strike price of $0.70. How many options contracts do you need to hedge this risk? Do you want a call or put on Swiss francs? When will you exercise the options? When will you let the options expire?
Blossom Inc. entered into a futures contract to sell grain for $1,120 in 30 days. This contract helps the company manage its market risk by locking in the amount it will get when it sells the grain. The contracts trade on an exchange and are net settleable. The broker requires a $220 initial margin (normally a percentage of the market value of the contract or a fixed amount multiplied by the number of contracts). This amount is deposited in cash with the broker. Like the forward, the futures contract would have a zero value up front. This is a non-financial derivative because the underlying is a non-financial commodity (grain). Blossom intends to settle on a net basis. Prepare the related journal entry at the acquisition date. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before credit entry.) Account Titles Debit Credit
Going long with Mexican peso futures contract. Soledad McArthur is the chief currency trader at the Magna Carta macro hedge fund. She decides on January 15 to go long by buying Mexican peso (MXN) March and June futures currently trading at US$0.11953 and US$0.11790.a. What does it mean to go long with an MXN futures contract? What is Soledad's implied exchange rate scenario?b. Assuming that the initial margin is set at 12.5 percent of the face value of the contract, what is the amount that Soledad has to deposit in the margin account (each contract has a face value of MXN 500,000)?c. If Soledad held the March futures to maturity and the spot exchange rate on that day was US$0.11878 = MXN 1, what would be the cash gain/loss incurred by Magna Carta? Assume that the margin account remains constant during the March futures holding period and that Magna Carta's opportunity cost of capital is 10 percent.d. On January 16, the inflation forecast released by Mexican authorities points to an…
Use the following information for Problems 21 and 22.On November 1, 2017, Dos Santos Company forecasts the purchase of raw materials from a Brazilian supplier on February 1, 2018, at a price of 200,000 Brazilian reals. On November 1, 2017, Dos Santos pays $1,500 for a three-month call option on 200,000 reals with a strike price of $0.40 per real. Dos Santos properly designates the option as a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2017, the option has a fair value of $1,100. The following spot exchange rates apply:What is the net impact on Dos Santos Company’s 2018 net income as a result of this hedge of a forecasted foreign currency transaction? Assume that the raw materials are consumed and become a part of the cost of goods sold in 2018.a. $80,000 decrease in net income.b. $80,600 decrease in net income.c. $81,100 decrease in net income.d. $83,100 decrease in net income.
The price of the July corn futures is $4.13, and the September corn futures are 10 cents higher. A trader thinks that the spread between July and September will contract.a. How would the trader use a spread order to bet on your view?b. Did the trader buy or sell the spread?c. How much money would you make if the price of July corn futures increases to $5.00 and the September contract drops to $4.50. Assume the spread trade was for 5000 bushels of corn.
It is 1st January and you have an existing $10m floating rate US dollar bank deposit based on 90-day LIBOR. Current interest rate is 4% pa and there is a flat yield curve. The Eurodollar futures price on 1st January is F0 = 99. The next 2 interest rate reset dates on the deposit are the 15th February and the 15th May. The contract size for Eurodollar futures is $1m. How would you hedge this position on 1st January using Eurodollar futures contracts? Explain the outcome of the hedge if (all) yields fall to 3% pa on the 10th January and then fall to 2% pa on the 10th of May. What are the risks in the hedge?
Suppose a oil producer wants to hedge against possible price fluctuations in the market. For example, in November, he decides to enter into a short-sell position in a 2 (two) futures contracts in order to limit his exposure to a possible decline in the cash price prior to the time when he will sell his oil in the cash market. Assume that the spot price of oil is $30 and the futures price for a March futures contract is $45. What is the basis? Выберите один ответ: a. 30 b. 7.5 c. 25 d. 15 e. 45
The futures price of an asset is currently 80 and the risk-free rate is 4%. A six-month put on the futures with a strike price of 85 is currently worth 6.5. What is the value of a six-month call on the futures with a strike price of 85 if both the put and call are European? What is the range of possible values of the six-month call with a strike price of 85 if both put and call are American? Show all work and briefly discuss.

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