1) Consider the wheat futures contract with 3 months to maturity (contract size: 5000 bushels, quotation: cents/bushel, initial margin $1200/contract, maintenance margin 75% of initial margin). Suppose that a firm shorts 8 contracts when the futures price is at 598. Suppose that the following settlement prices are recorded in the subsequent days: F1 = 608, F2 = 597, F3 = 589, F4 = 592, F5 = 601, F6 = 582, : F7 = 607, F8 = 615, F9 = 603, F10 = 611, F11 = 622, F12 = 620, F13 = 632, F14 = 622.

Assuming that the firm answers all margin calls. (assuming that the firm answers all margin calls and does not withdraw any excess balances), how much in total does the fabricator gain or lose on its futures position at the end of these fourteen days?

Describe the evolution of the margin account if the firm is long 10 contracts.

2) A bond with 1 years left to maturity pays a semi-annual coupon rate of 7% a face value of $1000. The price of $981. The 6-month, 9-month, 12-month, 15-month and 18-month risk free rates are 7.4%, 7.75% and 8.25%, 8.5% and 8.6% p.a. respectively. What is the forward price for a contract on this bond that matures in fifteen months?

3) a) Suppose you buy an asset at $70 and sell a futures contract at $72. What is your profit if, prior to expiration, you sell the asset at $75 and the futures price is $78?

b) Suppose the spot price for an asset is $146 and you buy a futures contract at a futures price of $150. If the futures price changes to $147, what is the value of the futures contract an instant before it is marked-to-market?

c) It is March 1. A US company expects to receive 80 million Japanese yen at the end of October. Yen futures contracts on the CME have delivery months of March, June, September and December. One contract is for 12.5 million yen and the current spot price for the yen is 0.9175 ents/yen. The current futures prices are: June 0.9350 , Sept 0.9625, and Dec 0.9800.

Suppose in October, when the hedge is closed out, the, the spot price and (relevant) futures price for the yen are 0.9200 and 0.9250 respectively. Which contract should the company use to hedge the FX risk and, when the hedge is closed out, what is the effective price paid by the company for the yen, and what is its effective profit on the hedge?