1. On Monday morning, an investor takes a short position in a euro futures contract that matures on Wednesday afternoon. The agreed-upon price is $0.9320 for 120,000. At the close of trading on Monday, the futures price has fallen to $0.9300. At Tuesday close, the price falls further to $0.9295. At Wednesday close, the price rises to $0.9430, and the contract matures. The investor delivers the euros at the prevailing price of $0.8420. Detail the daily settlement process (see Exhibit 8.2). What will be the investor's profit (loss)?

2. On August 6, you go long one IMM yen futures contract at an opening price of $0.00815 with a performance bond of $4,780 and a maintenance performance bond of $3,600. The settlement prices for August 6, 7, and 8 are $0.00793, $0.00855, and $0.00898, respectively. On August 9, you close out the contract at a price of $0.00852. Your round-trip commission is $33.24. a. Calculate the daily cash flows on your account. Be sure to take into account your required performance bond and any performance bond calls b. What is your cash balance with your broker on the morning of August 10?

3. Biogen expects to receive royalty payments totaling 1.25 million next month. It is interested in protecting these receipts against a drop in the value of the pound. It can sell 30-day pound futures at a price of $1.6513 per pound or it can buy pound put options with a strike price of $1.6612 at a premium of 2.0 cents per pound. The spot price of the pound is currently $1.6560, and the pound is expected to trade in the range of $1.6250 to $1.7010. Biogen's treasurer believes that the most likely price of the pound in 30 days will be $1.6400. a. How many futures contracts will Biogen need to protect its receipts? How many options contracts? b. Diagram Biogen's profit and loss associated with the put option position and the futures position within its range of expected exchange rates (see Exhibit 8.6). Ignore transaction costs and margins. c. Calculate what Biogen would gain or lose on the option and futures positions within the range of expected future exchange rates and if the pound settled at its most likely value. d. What is Biogen's break-even future spot price on the option contract? On the futures contract? e. Calculate and diagram the corresponding profit and loss and break-even positions on the futures and options contracts for those who took the other side of these contracts.

4. Assume that the spot price of the British pound is $1.50, the annualized 30-day sterling interest rate is 10%, the annualized 30-day U.S. interest rate is 8.5%, and the annualized standard deviation of the dollar: pound exchange rate is 17%. Calculate the value of a 30-day PHLX call option on the pound at a strike price of $1.57.

5. Suppose the spot price of the yen is $0.0110, the three-month annualized yen interest rate is 3.2%, the threemonth annualized dollar rate is 6.2%, and the annualized standard deviation of the dollar: yen exchange rate is 13.6%. What is the value of a three-month PHLX call option on the Japanese yen at a strike price of $0.0098/?

3. Suppose that the premium on March 20 on a June 20 yen put option is 0.0515 cents per yen at a strike price of $0.0075. The forward rate for June 20 is 1 = $0.00780 and the quarterly U.S. interest rate is 2%. If put-call parity holds, what is the current price of a June 20 PHLX yen call option with an exercise price of $0.0075?