SDF plc sells a futures contract on Klankian dollars (KAD) with eight days to go before maturity for KADGBP 0.80.

The closing prices over those eight days is as follows:

a Explain why daily settlement is required and calculate the daily settlements for SDF.
b Explain why the contract itself is very cheap.
c Illustrate the effect of a default by the counterparty.
d SDF let the futures run to maturity. Explain the difficulties that this may have caused.
e Explain why letting commodity futures run to maturity is a very bad policy.

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Start of Day 1 Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 0.80 0.81 0.83 0.80 0.82 0.83 0.84 0.83 0.83