536-3a_HW[1]

536-3a_HW[1] - 536-3a_HW, 11S FIN 536 SU Page 1 of 13 Topic...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 536-3a_HW, 11S FIN 536 SU Page 1 of 13 Topic 3 Foreign Currency Derivatives P8.3 -- SolutionPROFIT PROFILE: SHOW ALL YOUR WORK CLEARLYa) A loss of $0.01227 per peso OR -$49,080 b) A gain of $0.00973 per peso OR $38,920 c) A loss of $0.00227 per peso OR -$9,080P8.4 -- SolutionPROFIT PROFILE: SHOW ALL YOUR WORK CLEARLYa) A loss of $0.0182 per OR -$5,687.5 b) A loss of $0.0332 per OR -$24,900 c) A gain of $0.0332 per OR $6,225 d) A gain of $0.0182 per OR $13,650 536-3a_HW, 11S FIN 536 SU Page 2 of 13 Exam Sample Problem 1DAILY SETTLEMENT: SHOW ALL YOUR WORK CLEARLY Time Action Profits Performance BondMon. Morning Sell 1 IMM Yen futures contract at 0.011842 $/. 12.5 M per contract, I.P.B.=$5400, M.P.B.=$4000 ? ? Mon. Close Future price changes to 0.011951 $/ ? ? Tues. close Future price changes to 0.011990 $/ ? ? Wed. close Future price changes to 0.011784 $/ ? ? Thu. Close Future price changes to 0.011778 $/ ? ? Friday Offset trading Close out at 0.011803 $/, pay a round-trip commission$27 ? ? 1.What is the daily profit and balance of the performance bond account? a)How do you engage in the offset trading? b)Based on the profit column, how much is your total profit (including the commission)? c)Verify your answer using the Performance Bond balance information. 2.Repeat question 1, assuming there is no daily settlement. 3.Repeat question 1, assuming that at maturity, you decide to settle the contract through physical delivery. You still pay for the $27 commission fee. a)Based on the profit column, how much is your total profit (including the commission)? b)Specify the transactions involved in the physical delivery. c)How much do you receive (your final $ revenue) from selling one yen future contract? 4.Repeat question 3, assuming there is no daily settlement. 5.What can you tell from these four different scenarios? Elaborate. Exam Sample Problem 1 Solution Time Action Profits Performance Bond Mon. Morning Sell 1 IMM Yen futures contract at 0.011842 $/. 12.5 M per contract, I.P.B.=$5400, M.P.B.=$4000 $5400Mon. Close Future price changes to 0.011951 $/ -$1362.5$4037.5 Tues. close Future price changes to 0.011990 $/ -$487.5$3550 < MPB deposit $1850 $5400Wed. close Future price changes to 0.011784 $/ $2575$7975Thu. Close Future price changes to 0.011778 $/ $75$8050Friday Offset trading Close out at 0.011803 $/, pay a round-trip commission$27 -$312.5 -$27$7737.5 $7710.51.Offset trading with Daily settlement: a)buy 1 IMM future contract b)0-1362.5-48735+2575+75-312.5-27 = $460.5; c)Verification: 7710.5-5400-1850 = $460.5; 2.Offset trading with No Daily settlement: a)12,500,000(0.011842-0.011803)-27 = $460.53.Physical Delivery with Daily settlement: a)Gain $460.5;b)Pay 12,500,000 and receive $ 147,537.5; c)Final revenue: $147,375+460.5 = $147,998; 4.Physical Delivery with No Daily settlement: a)Pay $27;b)Pay 12,500,000 and receive $ 12,500,000*0.011842 = $148,025; c)Final revenue: $148,025-27 = $147,998; 5.Discuss!!!! 536-3a_HW, 11S...
View Full Document

Page1 / 13

536-3a_HW[1] - 536-3a_HW, 11S FIN 536 SU Page 1 of 13 Topic...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online