2. The futures price of gold is $1,250. Futures contracts are for 100 ounces of gold, and the margin requirement is $5,000 a contract. The maintenance margin requirement is $1,500. You expect the price of gold to rise and enter into a contract to buy gold.

a) How much must you initially remit?

b) If the futures price of gold rises to $1,255, what is the profit and percentage return on your position?

c) If the futures price of gold declines to $1,248, what is the loss and percentage return on the position

d) If the futures price falls to $1,238, what must you do?

e) If the futures price continues to decline to $1,210, how much do you have in your account?

f) How do you close your position?

3.The futures price of British pounds is $2.00. Futures contracts are for 10,000, so a contract is worth $20,000. The margin requirement is $2,000 a contract, and the maintenance margin requirement is $1,200. A speculator expects the price of the pound to fall and enters into a contract to sell pounds.

a) How much must the speculator initially remit?

b) If the futures price rises to $2.13, what must the speculator do?

c)If the futures price continues to rise to $2.14, how much does the speculator have

in the account?

4. You expect to receive a payment of 1,000,000 in British pounds after six months. The pound is currently worth $1.60 (i.e., 1 5 $1.60), but the six-month futures price is $1.56 (i.e., 1 5 $1.56). You expect the price of the pound to decline (i.e., the value of the dollar to rise). If this expectation is fulfilled, you will suffer a loss when the pounds are converted into dollars when you receive them six months in the future.

a) Given the current price, what is the expected payment in dollars?

b) Given the futures price, how much would you receive in dollars?

c) If, after six months, the pound is worth $1.35, what is your loss from the decline in

the value of the pound?

d) To avoid this potential loss, you decide to hedge and sell a contract for the future

delivery of pounds at the going futures price of $1.56. What is the cost to you of

this protection from the possible decline in the value of the pound?

e) If, after hedging, the price of the pound falls to $1.35, what is the maximum amount

that you lose? Why is your answer different from your answer to part (c)?

f) If, after hedging, the price of the pound rises to $1.80, how much do you gain from

your position?

g) How would your answer to part (f) be different if you had not hedged and the price

of the pound had risen to $1.8