Hw5 - Economics 442 Homework 6 Due: in class on Section,...

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Economics 442 Homework 6 Due: in class on Section, Friday April 11th 1. Margin requirement: Suppose it is December 1st, 2005 (day zero) and a US firm will make €100 million payment on June 15, 2006. To insure against the exchange rate movement, the firm chooses to use future contract. The currency future contract on € is described as fol- lows: Underlying asset: Contracts size: €125,000 Maturity date: June 15, 2006 Settlement price: $1.20/€ Initial margin requrement: 4% (in dollars) Margin maintenance: 75% of initial margin The future prices are evolving overtime and given in the table below: Date 1 2 3 4 Future price $1.190 $1.185 $1.800 $1.750 a. To hedge against the uncertainty in the exchange rate, which position should the firm take on future contract? b. What is the amount of initial margin account deposit? c. On what date, the firm will receive a margin call and what is the amount of the margin call? d. What are the profits (losses) for the first four days?
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Hw5 - Economics 442 Homework 6 Due: in class on Section,...

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