7

7. (10 points) Assume today's settlement price on a Chicago Mercantile Exchange futures contract is $1.3140/EUR. You have a short position in two contracts. Your margin account currently has a balance of $3,400. The next three days' settlement prices are $1.3126, $1.3133, and $1.3049. Show the changes in the margin account from daily marking-to-market and the balance of account after the third day. The contract size of one EUR contract is EUR125,000. on 8 (6 points; 3 each). A speculator is considering the purchase of five three-month Japanese yen call options with an exercise price of $0.0096 per yen. Each option contract is for 1,000,000 yens. The option premium is $0.000135 per yen. The spot price is 50.009528 per yen and the 90-day forward rate is $0.009571 per yen. The speculator believes the yen will appreciate to $0.o100 per yen over the next three months. As the speculator's assistant, you have been asked to explain whether the option should be exercised and to determine the speculator's profit in each of the following two scenarios: 8a. the yen appreciates to $0.0100 per yen. 8h the yen only appreciates to the forward rate (i.e., to S0000571 per yen)