Answer for all
Chapter 3 Forward and Futures Markets: Pricing and Analysis 6 9. Suppose it is June 2016: you expect the price of rice to increase over the next 3 months. (Assume to- rice futures are traded on BMDB on the typical 3-month cycles) initial margin -10% Contract size 5000 kg Current spot RM 3 per kg Transaction cost RM 40 per contract (per round trip) a. Given the following information, what can you do to take advantage of your expectation? You nce have RM 10,000 to invest Suppose rice goes to RM 3.50 per kg over the next 3 months. What is your net return in RM and % given your position in (a)? what would your net return in RM and % be b. rice is at RM 2.25 in 3 months? d. Explain why the results in (b) and (c) are so different 10. A farmer shorts cocoa futures contrects for 500 tons at RM 6,000 per ton. The exchange requires him to post RM 300.000 as initial margin. If the maintenance margin is RM 250,000, what price change (per ton) would lead to a margin call? What price change could lead to RM 30,000 being credited to his margin account? 11. Suppose that on 15 September 2016, you sell 100,000 forward for delivery on 15 JanuBry 2017. On 15 September 2016, the spot price of a is $0.95 (i.e. the exchange rate is $0.95/E) and the forward price for delivery 4 months later is $O.92/. Then, on 15 January 2017, the spot price of a is $0.93, and the forward price for delivery 4 months leter G.e. for delivery on nd 15 May 2001) is $0.94/. Determine your profit or loss on the transaction. 12. Suppose you bought one goid futures contract for August delivery at its 2 April settlement price of $279/oz. Assume that both the last trading date and the delivery date are 27 August Assume that your borrowing and lending rates are 8% per year, and that you borrow to meet any mark-to- a. If the goid futures price remains unchanged until 26 August, then falls to $250/oz. on b. If, instead, the gold futures price falls to $250/oz. on 3 April and stays there until the delivery c. If, instead, the gold futures price rises to $420/oz. on 3 April stays there, and then falls to d. Given that money has time value, which of the foregoing price scenarios is most attractive: a, market cash outflows and lend any mark to market losses. 27 August, what is your profit or loss per ounce? date, what is you profit or loss? $250/oz. on 27 August then what is your profit or loss? b, or c? Briefly explain why 13. A corporate treasurer who was long 3 month futures contracts on British pound sterling for 400,000 pounds subsequently goes short 3 month pound forward contracts for 400,000 pounds. Assume the exchange rate in both cases is equal. What is his net position in British pounds? Use the information below for Questions 14 and 15. The spot price of tin is now RM 14,000 per ton. The annualized 3-month KLIBOR rate is 8%, while there is no yield from holding tin, there is a storage cost. Currently the storage cost is about RM 420 per ton per year. Futures contracts on tin are quoted as follows 3-month futures RM 14,171.80 (90 days) 6-month futures - RM 14,395.73 (180 days) Chapter 3 Forward and Futures Markets: Pricing and Analysis 6 9. Suppose it is June 2016: you expect the price of rice to increase over the next 3 months. (Assume to- rice futures are traded on BMDB on the typical 3-month cycles) initial margin -10% Contract size 5000 kg Current spot RM 3 per kg Transaction cost RM 40 per contract (per round trip) a. Given the following information, what can you do to take advantage of your expectation? You nce have RM 10,000 to invest Suppose rice goes to RM 3.50 per kg over the next 3 months. What is your net return in RM and % given your position in (a)? what would your net return in RM and % be b. rice is at RM 2.25 in 3 months? d. Explain why the results in (b) and (c) are so different 10. A farmer shorts cocoa futures contrects for 500 tons at RM 6,000 per ton. The exchange requires him to post RM 300.000 as initial margin. If the maintenance margin is RM 250,000, what price change (per ton) would lead to a margin call? What price change could lead to RM 30,000 being credited to his margin account? 11. Suppose that on 15 September 2016, you sell 100,000 forward for delivery on 15 JanuBry 2017. On 15 September 2016, the spot price of a is $0.95 (i.e. the exchange rate is $0.95/E) and the forward price for delivery 4 months later is $O.92/. Then, on 15 January 2017, the spot price of a is $0.93, and the forward price for delivery 4 months leter G.e. for delivery on nd 15 May 2001) is $0.94/. Determine your profit or loss on the transaction. 12. Suppose you bought one goid futures contract for August delivery at its 2 April settlement price of $279/oz. Assume that both the last trading date and the delivery date are 27 August Assume that your borrowing and lending rates are 8% per year, and that you borrow to meet any mark-to- a. If the goid futures price remains unchanged until 26 August, then falls to $250/oz. on b. If, instead, the gold futures price falls to $250/oz. on 3 April and stays there until the delivery c. If, instead, the gold futures price rises to $420/oz. on 3 April stays there, and then falls to d. Given that money has time value, which of the foregoing price scenarios is most attractive: a, market cash outflows and lend any mark to market losses. 27 August, what is your profit or loss per ounce? date, what is you profit or loss? $250/oz. on 27 August then what is your profit or loss? b, or c? Briefly explain why 13. A corporate treasurer who was long 3 month futures contracts on British pound sterling for 400,000 pounds subsequently goes short 3 month pound forward contracts for 400,000 pounds. Assume the exchange rate in both cases is equal. What is his net position in British pounds? Use the information below for Questions 14 and 15. The spot price of tin is now RM 14,000 per ton. The annualized 3-month KLIBOR rate is 8%, while there is no yield from holding tin, there is a storage cost. Currently the storage cost is about RM 420 per ton per year. Futures contracts on tin are quoted as follows 3-month futures RM 14,171.80 (90 days) 6-month futures - RM 14,395.73 (180 days)
