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1b. If you had speculated the day of DC1 by selling currency forward contract(s) that specify receipt of 1 million units of the foreign currency,
| 1b. If you had speculated the day of DC1 by selling currency forward contract(s) that specify receipt of 1 million units of the foreign currency, and then settled up on your contract(s) the day of DC2, what would be your profit or loss? | ||||||
| Please report the profit/loss before and after commissions. | ||||||
| Spot (beg) | Analysts' | |||||
| Fwd points (beg) | recommended | |||||
| Spot (end) | Net profit/loss | trade | ||||
| P/L per unit |
| |||||
| Basic information for this currency pair | USD/JPY | |||||
| # units required of the foreign currency | 100000000 | |||||
| Direct pair (Y/N) | N | # contracts needed to complete the number of units | 8 | |||
| BId | Ask | Transaction cost to trade one futures contract | $ 5.00 | |||
| Indirect price (beginning) | 146.64 | 146.67 | Transaction cost to trade one options contract | $ 7.50 | ||
| Indirect price (end) | 138.79 | 138.82 | ||||
| Direct price (beginning) | 0.006818 | 0.006819 | 11/4/2022 | DC1 date | ||
| Direct price (end) | 0.007204 | 0.007205 | 11/11/2022 | DC2 date | ||
| Pip converter (100 or 10000) | # days | 7 | ||||
| 100 | ||||||
| Futures contract converter | ||||||
| 10000000 | ||||||
| Option price adjustment factor (1,100,10000) | ||||||
| 10000 | ||||||
DC1:
| 1. Currency to hedge | Japanese Yen | ||
| 1a Currency pair formed with the US dollar (as seen in OANDA, FXCM) | USD/JPY | ||
| 1b Date when hedge (trading) will be closed and all the calculations done | Friday, November 11, 2022 | ||
| 1c Is this a direct quote in the spot market? (Y/N) | N | ||
| 2. Exchange rate of the currency as typically quoted in FX markets. Use the SPOT price from the Investing.com site | BID | ASK | |
| 146.64 | 146.67 | ||
| 2a Express the price as a direct quote (value of one unit of that currency in dollars) | 0.0068180 | 0.0068194 | |
| 3. Three or six-month future rate as of this date (use whatever period covers the second data collection period) Report the settlement price reported on the CME Group website | 68190 | ||
| Expiration month of future contract | November-22 | ||
| . Specify the size of the future (option) contracts | 12500000 | ||
| 4. Forward points observed on this date. Use the Investing.com website for information. Select data for 1W (summer) or the period specified for the exercise. Students doing USDJPY must use an appropriate factor to convert pips. | BID | ASK | |
| -11.59 | -11.25 | ||
| Horizon for Fwd quotes | 1 Month | ||
| 5. Use the CME group website to obtain option price data. | Nov-22 | ||
| Specify the expiration week,month and year on the CME options that will cover the period you are interested in hedging | |||
| Strike | Premium | ||
| 5a. Choose a call option that is in the money and obtain its premium | 6725 | 1.3 | |
| 5b. Find the call option that is at the money and obtain its premium | 6825 | 0.58 | |
| 5c. Choose a call option that is out the money and obtain its premium | 6925 | 0.19 | |
| 6. Use the CME group website to obtain put option price data. | |||
| Use the same expiration month you chose for call options | Strike | Premium | |
| 6a. Choose a put option that is in the money and obtain its premium | 6925 | 0.97 | |
| 6b. Find the put option that is at the money and obtain its premium | 6825 | 0.37 | |
| 6c. Choose a put option that is out the money and obtain its premium | 6725 | 0.09 | |
| 7. Use the Global Rates website to identify the LIBOR rates | LIBOR rates | ||
| Overnight | 1 Month | ||
| USD rate (Overnight and for hedging period) | 3.8133% | 3.84657% | |
| Foreign currency rate for the horizon selected | -0.06005% | ||
DC2:
| 1. Name of the currency to hedge | Japanese Yen | ||
| 1a Name of the currency pair formed against the US dollar (OANDA, FXCM) (OANDA, FXCM) (OANDA, FXCM) | USD/JPY | ||
| 1b Is this a direct quote in the spot market? (Y/N) | N | ||
| 2. Exchange rate of the currency as typically quoted in FX markets | BID | ASK | |
| Use the last quote of that day/week. | 138.79 | 138.82 | |
| 2a Express the price as a direct quote (value of one unit of that currency in dollars) | 0.0072036 | 0.0072051 | |
| 3. Price of the futures contract from the CME Group website | 72225 | ||
| Expiration month of future contract | Nov-22 | ||
| 4. Use the CME group website to obtain call option price data. | Nov-22 | ||
| This is the expiration month that you are using for the options | |||
| Strike | Premium | ||
| 4a. Obtain the premium for the call option with this strike price | 6725 | 4.79 | |
| 4b. Obtain the premium for the call option with this strike price | 6825 | 3.79 | |
| 4c. Obtain the premium for the call option with this strike price | 6925 | 2.79 | |
| 5. Use the CME group website to obtain put option price data. | |||
| Strike | Premium | ||
| 5a. Obtain the premium for the put option with this strike price | 6925 | 0 | |
| 5b. Obtain the premium for the put option with this strike price | 6825 | 0 | |
| 5c. Obtain the premium for the put option with this strike price | 6725 | 0.00 | |
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Financial Management In The Public Sector Tools Applications And Cases
Authors: Xiaohu Wang
2nd Edition
0765625229, 9780765625229
