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eiteman_178963_im05

# eiteman_178963_im05 - Problem 5.1 Peso Futures Amber...

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Problem 5.1 Peso Futures Amber McClain sells June futures a) b) c) Assumptions Values Values Values Number of pesos per futures contract 500,000 500,000 500,000 Number of contracts 8.00 8.00 8.00 Buy or sell the peso futures? Sell Sell Sell Ending spot rate (\$/peso) \$0.12000 \$0.09800 \$0.11000 June futures contract, settle price (\$/peso) \$0.10773 \$0.10773 \$0.10773 Spot - Futures \$0.01227 \$(0.00973) \$0.00227 Value of total position at maturity (US\$) \$(49,080.00) \$38,920.00 \$(9,080.00) Value = - Notional x (Spot - Futures) x 8 Interpretation Amber buys at the spot price and sells at the futures price. If the futures price is greater than the ending spot price, she makes a profit.

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Problem 5.2 Pound Futures Michael Palin buying & selling pound futures a) b) c) d) Assumptions Values Values Values Values Number of pounds per futures contract 62,500 62,500 62,500 62,500 Maturity month June March March June Number of contracts 5 12 3 12 Did he buy or sell the futures? buys sells buys sells Ending spot rate (\$/peso) \$1.3980 \$1.4560 \$1.4560 \$1.3980 Pound futures contract, settle price (\$/pound) \$1.4162 \$1.4228 \$1.4228 \$1.4162 Spot - Futures \$(0.0182) \$0.0332 \$0.0332 \$(0.0182) Value of position at maturity (\$) \$(5,687.50) \$(24,900.00) \$6,225.00 \$13,650.00 buys: Notional x (Spot - Futures) x contracts sells: - Notional x (Spot - Futures) x contracts Interpretation Buys a futures: Michael buys at the futures price and sells at the ending spot price. He therefore profits when the futures price is less than the ending spot price. Sells a future: Michael buys at the ending spot price and sells at the futures price. He therefore profits when the futures price is greater than the ending spot price.
Problem 5.3 Hans Schmidt, Euro Speculator Hans Schmidt uses \$10 million to speculate on the euro. a) b) Assumptions Values Values Initial investment (funds available) \$10,000,000 \$10,000,000 Current spot rate (US\$/euro) \$0.8850 \$0.8850 30-day forward rate (US\$/euro) \$0.9000 \$0.9000 Expected spot rate in 30 days (US\$/euro) \$0.8440 \$0.9440 Strategy for Part a): 1. Sell euros 30-days forward (in euros) 11,111,111.11 2. At the end of 30 days, buy these euros spot \$(9,377,777.78) 3. At the end of 30 days, sell euros at forward rate \$10,000,000.00 4. Realize profit \$622,222.22 Strategy for Part b): 1. Convert US\$ to euros at the current spot rate (US\$) \$(10,000,000.00) (in euros) 11,299,435.03 2. At the end of 30 days, convert back to US\$ at spot rate \$10,666,666.67 3. Realize profit \$666,666.67

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Problem 5.4 Hans Schmidt, Swiss franc Speculator Hans Schmidt uses \$100,000 to speculate on the Swiss franc. a) b) Assumptions Values Values Initial investment (funds available) \$100,000 \$100,000 Current spot rate (US\$/Swiss franc) \$0.5820 \$0.5820 Six-month forward rate (US\$/Swiss franc) \$0.5640 \$0.5640 Expected spot rate in six months (US\$/Swiss franc) \$0.6250 \$0.6250 Strategy for Part a): 1. Use the \$100,000 today to buy SF at spot rate SFr. 171,821.31 2. Hold the SF indefinitely. 3. At the end of six months, convert SF at expected rate \$0.6250 4. Yielding expected dollar revenues of \$107,388.32 5. Realize profit (revenues less \$100,000 initial invest) \$7,388.32 Strategy for Part b): 1. Buy SF forward six months (no cash outlay required) 2. Fulfill the six months forward in six months 177,304.96 cost in US\$ \$(100,000.00) 3. Convert the SF into US\$ at expected spot rate \$110,815.60 4. Realize profit \$10,815.60
Problem 5.5 Katya and the yen Katya Berezovsky wishes to speculate on the fall of the yen against the dollar

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