Answered step by step
Verified Expert Solution
Question
1 Approved Answer
a. (2 Marks) You buy a forward contract today at For = $1500 and make a reversing trade (sell) just before maturity (T) at FTT
a. (2 Marks) You buy a forward contract today at For = $1500 and make a reversing trade (sell) just before maturity (T) at FTT = $2000 or at Fit = $1000. Calculate your profits/losses and illustrate them with a graph of a buyer's (long) profile (profits versus forward price). b. (2 Marks) Repeat (a) for a seller's (short) profile. C. (4 Marks) If the spot price (So) in (a) is $1300, T = 1 yr., R= 10%, show how you could make riskless profits when For= $1500. Detail your transactions and cash flows. Assume no transaction fees and interest is the only cost of carry. (4 Marks) Repeat (c) for So = $1400. e. (Bonus 3 Marks) Define open interest and explain why it is different from volume. d. a. (2 Marks) You buy a forward contract today at For = $1500 and make a reversing trade (sell) just before maturity (T) at FTT = $2000 or at Fit = $1000. Calculate your profits/losses and illustrate them with a graph of a buyer's (long) profile (profits versus forward price). b. (2 Marks) Repeat (a) for a seller's (short) profile. C. (4 Marks) If the spot price (So) in (a) is $1300, T = 1 yr., R= 10%, show how you could make riskless profits when For= $1500. Detail your transactions and cash flows. Assume no transaction fees and interest is the only cost of carry. (4 Marks) Repeat (c) for So = $1400. e. (Bonus 3 Marks) Define open interest and explain why it is different from volume. d
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started