(10 points) Suppose you are a website designer who prefers to be paid in the cryptocurrency Bitcoin rather than in USD. Today on March 15, 2022, you make a deal with a client to create them their website with deadline end of July 2022. Your client agrees to pay you 0.30 Bitcoin for your work, but the client insists to pay you 0.30 Bitcoin end of July at the deadline, and not before! Knowing that Bitcoin is very volatile this arrangement of being paid 0.30 Bitcoin only in July but not today (in advance) makes you feel a bit worried. However, Micro Bitcoin Futures are traded on the exchange CME. The contract size is 0.10 units of Bitcoin per contract, the initial margin is 50% of the value (in USD) of the total position taken in the futures contracts and the maintenance margin is $1,255 per contract. The futures contracts are settled in cash (in USD) on the last day of trading of the delivery month July and do not involve any "physical" (digital) transfer of Bitcoin. Today's spot price of Bitcoin quoted on the cryptocurrency exchange Binance is $38,800 per one unit of Bitcoin and July 2022 Micro Bitcoin Futures are currently traded for $38,795 per one unit of Bitcoin on CME. You decide to use July 2022 Micro Bitcoin Futures for hedging your entire exposure to price changes of Bitcoin. (a) Describe the position you have to take with the July Bitcoin futures contracts from CME in order to hedge yourself. What is the initial margin you have to provide? Assume that July 29, 2022, is the last day of trading July Bitcoin Futures on CME and at the end of that day your position in the futures contracts will be settled in cash in USD at $35,000 per Bitcoin, the final settlement price determined by CME (the CME Bitcoin reference rate on that day). Moreover, assume that you also finished your work on that day and you received 0.30 Bitcoin from your client. (b) If the Bitcoin spot price on July 29, 2022, quoted on Binance is $35,100 per Bitcoin and you decide to sell your 0.3 Bitcoin you received from your client on Binance for that price, what would be the total USD amount you would receive for your Bitcoins together with your hedge from the futures contracts? (10 points) Suppose you are a website designer who prefers to be paid in the cryptocurrency Bitcoin rather than in USD. Today on March 15, 2022, you make a deal with a client to create them their website with deadline end of July 2022. Your client agrees to pay you 0.30 Bitcoin for your work, but the client insists to pay you 0.30 Bitcoin end of July at the deadline, and not before! Knowing that Bitcoin is very volatile this arrangement of being paid 0.30 Bitcoin only in July but not today (in advance) makes you feel a bit worried. However, Micro Bitcoin Futures are traded on the exchange CME. The contract size is 0.10 units of Bitcoin per contract, the initial margin is 50% of the value (in USD) of the total position taken in the futures contracts and the maintenance margin is $1,255 per contract. The futures contracts are settled in cash (in USD) on the last day of trading of the delivery month July and do not involve any "physical" (digital) transfer of Bitcoin. Today's spot price of Bitcoin quoted on the cryptocurrency exchange Binance is $38,800 per one unit of Bitcoin and July 2022 Micro Bitcoin Futures are currently traded for $38,795 per one unit of Bitcoin on CME. You decide to use July 2022 Micro Bitcoin Futures for hedging your entire exposure to price changes of Bitcoin. (a) Describe the position you have to take with the July Bitcoin futures contracts from CME in order to hedge yourself. What is the initial margin you have to provide? Assume that July 29, 2022, is the last day of trading July Bitcoin Futures on CME and at the end of that day your position in the futures contracts will be settled in cash in USD at $35,000 per Bitcoin, the final settlement price determined by CME (the CME Bitcoin reference rate on that day). Moreover, assume that you also finished your work on that day and you received 0.30 Bitcoin from your client. (b) If the Bitcoin spot price on July 29, 2022, quoted on Binance is $35,100 per Bitcoin and you decide to sell your 0.3 Bitcoin you received from your client on Binance for that price, what would be the total USD amount you would receive for your Bitcoins together with your hedge from the futures contracts
