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The Hamburger Standard and Futures

# The Hamburger Standard and Futures - the following...

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3/25/10 The Hamburger Standard Country In local currency In US dollars Implied PPP of the dollar Actual dollar exchange rate Under (-) / Over (+) valuation against \$, % United States \$2.71 2.71 Australia A\$3.00 1.86 1.11 1.61 -31 Britain £1.99 3.14 1.36 1.58 +16 Canada C\$3.20 2.21 1.18 1.45 -18 Euro Area €2.71 2.97 1.00 1.10 +10 New Zealand NZ\$3.95 2.21 1.46 1.78 -18

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3/25/10 Big Mac Calculations Australian buyer paid out in US Dollars o Australian Price in Australian Dollars/ Actual Exchange Rate 3.00A\$/1.61AER= 1.86US\$
3/25/10 Futures—Calculations (An Example) Suppose A buys 20 contracts for December 16 on December 11. The December 16 Sterling contract is traded at \$1.58. Each contract includes 62,500 units of Sterling Pound. Suppose the market has

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Unformatted text preview: the following settlement prices each day, from initiation to maturity. Settlement Prices December 12 \$1.60 December 13 \$1.62 December 14 \$1.53 December 15 \$1.55 December 16 \$1.56 3/25/10 Futures Example • Now let us see how the accounts of A (the buyer) and B (the seller) are affected: • Value of Futures Contract on Dec. 11th: 20 X 1.58 X 62,500= \$1,975,000 • Value of Futures Contract on Dec. 12th: 20 X 1.60 X 62,500= \$2,000,000 • Difference: \$2,000,000 - \$1,975,000= \$25,000 Date Account A Account B December 12 +25,000-25,000 December 13 +25,000-25,000 December 14-112,500 +112,500 December 15 +25,000-25,000 December 16 +12,500-12,500...
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The Hamburger Standard and Futures - the following...

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