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(a) Four days ago you entered into a futures contract to sell 125,000 at $1.13 per euro. The spot exchange rate when you entered the
(a) Four days ago you entered into a futures contract to sell 125,000 at $1.13 per euro. The spot exchange rate when you entered the contract was $1.11. Your initial margin was $7,000 and your maintenance level was $2,800. Over the past four days (in order) the contract has settled at $1.14, $1.12, $1.18, and $1.17. i. What should your margin account balance be at the end of the four days? (8 marks) ii. Will you get a margin call within the four days? If yes, how much should be posted to your margin account? (2 marks) (b) TBL Inc., is a U.S. company that imports Germany goods. It plans to use currency derivatives to hedge payables of 100,000 in 60 days. The possible spot for in 60 days are as below: Possible Spot for in 60 days $1.60 $1.65 $1.70 $1.75 i. Suppose the forward rate is $1.65/. How can TBL Inc. hedge its position by using forward contract? What will be TBL's gain/loss from hedge? (5 marks) ii. Suppose the option exercise price is $1.65/ and the premium is $0.02 per unit. How can the TBL Inc. hedge its position by using options? What will be TBL Inc.'s gain/loss from hedge
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