2.You are a large customer of a major Wall Street investment bank. They believe the price of oil will be goingupover the next year and they are willing to enter an unlimited number oflongpositions onforward contractsbasedon the price of Light Sweet Crude Oil for delivery inJune 2021. Each contract will be for 1,000 barrels of oil with a price based on the futures price for the same maturity. No margin or settling up is required forthecontracts.

(a) You are consideringenteringshortforwardcontractsonoil.How many contracts can you enter if you have $200,000in your trading account to use as collateral?

(b)If youenter100shortforwardcontracts at today's futures price forJune 2021(assume this is a9month contract)and the price goes to$60inNovember 2020,what is the value of your positionas ofNovember 2020(assume there are7months remaining) if the risk-free rate is 1%?

(c) Based on your answer to part (b), is there any counterparty risk inNovember2020on this contract?Explain.

(d) Using the normal distribution, what is the9month99% VARon 100forward contractsif thedailyexpectedreturn on oil is 0 and thedailystandard deviation is 1.5%?(Use1 year = 252 trading days to find the 9 month VAR).