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Unformatted text preview: Tutorial 14 Derivatives: Futures Pricing and Hedging Due Date: 31 August 2009 1. Today is 1 September 2008. The JSE/FTSI All Share Index is 27 000 points (weighted average dividend yield = 3% p.a.). The shortterm treasury bill rate is currently 8%, and the initial margin for ALSI index futures is set at 12% of the transaction value. a) What is the annual cost of carry for the ALSI index futures contracts? Is the ALSI index futures contango or backwardation? b) What is the cost of carry for the ALSI index futures contracts that expire on 31 Dec 2008? c) What is the fair/intrinsic value for one ALSI index futures contract that expires on 31 Dec 2008? d) Assume ALSI index futures contracts are trading at their fair values. What will be the profit/loss and margin account levels to long and short futures contract positions on 2 September 2008 and 3 September 2008 if ALSI index futures are 29 500 and 27 500 on 2 September 2008 and 3 September 2008 respectively. 2. The Rand and Pound exchange rate is currently R15.20 / £1. The interest rates in UK and SA are 2% p.a. and 8% p.a. respectively. a) What is the fair value for the 6month forward exchange rate between Rand and Pound? b) What should be the equilibrium premium/discount for the 6month pound forward? c) If the 6month forward exchange rate is actually R16.50. What will be the equivalent payment in rands for a SA importer who is obligated to pay £100 000 in 6 months if the importer decided to use forward cover (i.e. buy Pound forward)? d) If the 6month forward exchange rate is actually R15.80. What will be the equivalent receipt in rands for a SA exporter who will receive £500 000 in 6 months if he decided to use forward cover (i.e. sell Pound forward)?months if he decided to use forward cover (i....
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This note was uploaded on 06/01/2011 for the course FIN 3026W taught by Professor Drtoerien during the Summer '09 term at University of Cape Town.
 Summer '09
 DrToerien
 Derivatives, Hedging

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