Below are the hypothetical contract specifications for a futures contract that could be traded on the grade for FIN.

Contract Specifications:

Trading Unit: $100 * value of the GPA(FIN) index (the spot price is the GPA(FIN) index) The GPA(FIN) index is simply the overall average percentage grade of students in FIN.

For example, if the current % average grade is 81.23% then the index is 81.23 Price Quote: Index Points multiplied by $100 and 0.05 of a point Minimum fluctuations: 0.05 index points ($5 per contract)

Daily price movement limits: none Position limits: 10 contracts Delivery: by cash settlement, each $10 gain or loss translates into a 1-point gain or loss in the class. Trading hours: 9:30 a.m. to 3:15 p.m. Tuesday through Thursday, Central Time Trading method: Automatic system students enter their desired position (long or short) and price. If there is a student willing to take the opposite position at that price a trade occurs. Trades are executed in the order they are received. In other words, if multiple trades at a given price are received, the request received first will be filled first if a matching order is placed that allows a contract to be opened. Once a trade request is open it remains open until it is filled unless it is canceled by the student. The lowest price for an outstanding (non-filled) order for short contracts and the highest price for an outstanding (non-filled) order for long contracts will be posted as orders are received along with the total amount of both long and short unfilled orders. Delivery Date: The last day of the class Final trading day: December 5, 2021

a) An explanation of how trading in the contract could be used to hedge against a grade decline, (assume that a $10 change in price represents 1 point change in the class). For example: Assume that the current GPA Index in the class is 81.00 and the current forward price is 79.00. If you are afraid that everyone in the class will do poorly on an upcoming exam (including yourself implying that your grade will decrease along with everyone else in the class), what position would want to take to hedge your grade? Explain what would happen to your position if the futures price is 83.00 when you close out. What if it is 75.00 instead?

b) Would it be possible for trades to take place if everyone in the class was using the contract to hedge a possible grade decline? Would there need to be speculators in the market? Explain when you would be willing to take a speculative position? Would the volume of trades change if a test is due to be returned or if a homework assignment is due to be returned (think about how often the spot price changes and by how much it changes). Short Hedgers vs Long Spectators (Only if F(Sell) < Spot Expected in Future(Buy)

c) A discussion of any concerns you might have about possible contract manipulation and contract modifications that could address your fears. Specifically, think about the liquidity of the contract, the standardization of the contract, the amount of information available that can influence the price, and any ability of classmates to manipulate the spot and/or futures price.