FIN 417- Ch. 7 Book Solutions

# FIN 417- Ch. 7 Book Solutions - Chapter 07 - Futures and...

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Chapter 07 - Futures and Options on Foreign Exchange CHAPTER 7 FUTURES AND OPTIONS ON FOREIGN EXCHANGE PROBLEMS 1. Assume today’s settlement price on a CME EUR futures contract is \$1.3140/EUR. You have a short position in one contract. Your performance bond account currently has a balance of \$1,700. The next three days’ settlement prices are \$1.3126, \$1.3133, and \$1.3049. Calculate the changes in the performance bond account from daily marking-to-market and the balance of the performance bond account after the third day. Solution: \$1,700 + [(\$1.3140 - \$1.3126) + (\$1.3126 - \$1.3133) + (\$1.3133 - \$1.3049)] x EUR125,000 = \$2,837.50, where EUR125,000 is the contract size of one EUR contract. 2. Do problem 1 again assuming you have a long position in the futures contract. Solution: \$1,700 + [(\$1.3126 - \$1.3140) + (\$1.3133 - \$1.3126) + (\$1.3049 - \$1.3133)] x EUR125,000 = \$562.50, where EUR125,000 is the contract size of one EUR contract. With only \$562.50 in your performance bond account, you would experience a margin call requesting that additional funds be added to your performance bond account to bring the balance back up to the initial performance bond level. 3. Using the quotations in Exhibit 7.3, calculate the face value of the open interest in the September 2010 Swiss franc futures contract. 7-1

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Chapter 07 - Futures and Options on Foreign Exchange Solution: 3,496 contracts x SF125,000 = SF437,000,000, where SF125,000 is the contract size of one SF contract. Note: By comparison the face value of the open interest in the 46,450 June 2010 contracts is \$5,806,250,000. 4. Using the quotations in Exhibit 7.3, note that the September 2010 Mexican peso futures contract has a price of \$0.77275 per 10 MXN. You believe the spot price in September will be \$0.83800 per 10 MXN. What speculative position would you enter into to attempt to profit from your beliefs? Calculate your anticipated profits, assuming you take a position in three contracts. What is the size of your profit (loss) if the futures price is indeed an unbiased predictor of the
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## This note was uploaded on 11/15/2011 for the course FIN 417 taught by Professor Griffith during the Fall '11 term at Miami University.

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FIN 417- Ch. 7 Book Solutions - Chapter 07 - Futures and...

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