4)

Exhibit 8.1: Contract Specifications for Foreign Currency Futures

Euro

FXSwiss

Franc

Contract Size125,000SFr 125,000

SymbolECSF

Margin Requirements

Initial$5,400$2,700

Maintenance$4,000$2,000

On Monday morning you take a short position in a Euro futures contract. The price of the contract is $1.48 per . At Monday close, the price of the contract is $1.50 per . At Tuesday close, the price of the contract is $1.51 per . On Wednesday morning, the price is $1.49 per and you close out your position by taking a long position in the same Euro futures contract. Specifically describe the steps (including margin account impacts) that occur at each of the following times:

a)Monday Morning

b)Monday Evening

c)Tuesday Evening

d)Wednesday Morning

Fall 2016 FNAN 440 HW#1 1) Between 1982 and 2006, the S(/$) exchange rate moved from S(/$) 249.05 to S(/$) 116.34. During this same 25-year period, the consumer price index (CPI) in Japan rose from 80.75 to 97.72, and the CPI in the US rose from 56.06 to 117.07. a) If PPP held over this 25-year period, what should the S(/$) exchange rate have been in 2006? b) Was there a real appreciation or depreciation in the over this 25-year period (be sure to provide quantitative justification for your answer)? c) Were there likely any associated positive or negative competitive pressures on Japanese exporters vs importers? If so, what likely happened to the competitive position of Japanese exporters? Japanese importers? Why (briefly)? 2) Suppose the pound sterling is offered at S($/) 1.9422 in New York. The euro is offered at S($/) 1.4925 in Frankfurt. London banks are offering pounds sterling at S(/) 1.2998. a) Does a profitable arbitrage opportunity exist? Is so, how can the opportunity be exploited (Specifically describe the steps that should be taken)? b) What arbitrage profit, if any, can be earned on an initial investment of $1,000,000? 3) a) A call option on British Pounds expires in 3 months and has an exercise price of $1.65 per . The current price of the call option is $.25 per . The current spot rate is S($/) 1.60. If the risk-free rate in the US is 1.5% per year, compounded continuously, and the risk-free rate in the UK is 2.5% per year, compounded continuously, at what price should the corresponding put option sell? b) The current spot rate is S(/$) 89.00, and the 90-day forward rate is F90-day(/$) 92.00. In addition, 90-day CD's in the US currently pay 2% per year, compounded quarterly. If there are no arbitrage opportunities, what rate should be paid on a 90-day (yen-denominated) CD of similar risk in Japan? 4) Exhibit 8.1: Contract Specifications for Foreign Currency Futures Euro Swiss FX Franc Contract Size 125,000 SFr 125,000 Symbol EC SF Margin Requirements Initial $5,400 $2,700 Maintenance $4,000 $2,000 On Monday morning you take a short position in a Euro futures contract. The price of the contract is $1.48 per . At Monday close, the price of the contract is $1.50 per . At Tuesday close, the price of the contract is $1.51 per . On Wednesday morning, the price is $1.49 per and you close out your position by taking a long position in the same Euro futures contract. Specifically describe the steps (including margin account impacts) that occur at each of the following times: a) Monday Morning b) Monday Evening c) Tuesday Evening d) Wednesday Morning