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Q2. Match the vocabulary below with the following statements. (a) organized market (k) maintenance margin (b) standardized contract (I) margin call (c) standardized expiration (m) variation margin d) clearing corporation (n) open interest (e) daily recontracting (o) interest rate risk (1) marking to market (p) cross hedge (@) convergence (q) delta hedge (h) settlement price (r) delta-cross hedge (i) default risk of a futures (s) ruin risk j) initial margin Daily payment of the change in a forward or futures price. The collateral deposited as a guarantee when a futures position is opened. Daily payment of the discounted change in a forward or futures price The minimum level of collateral on deposit as a guarantee for a futures position. 5. A hedge on a currency for which no futures contracts exist and for an expiration other than what the buyer or seller of the contract desires. 6 An additional deposit of collateral for a margin account that has fallen below it maintenance level. 7 A contract for a standardized number of units of a good to be delivered at a specific date. 1-2 Exercises + Solutions International Financial Markets and the Firm 8. A hedge on a foreign-currency accounts receivable or accounts payable that is due on a day other than the last Wednesday of March, June, September, or December. 9 . The number of outstanding contracts for a given type of futures. 10. The one-day futures price change. 1 1. A proxy for the closing price which is used to ensure that a futures price is not manipulated. 12. Generally, the Wednesday of March, June, September, or December. 13. Organization that acts as a "go-between" for buyers and sellers of futures contracts. 14. The risk that the interim cash flows must be invested or borrowed at an unfavorable interest rate. 15. A hedge on a currency for which no futures contract exists. 16. The risk that the price of a futures contract drops (rises) so far that the purchaser (seller) has a severe short-term cash flow problems due to marking to market. 17. The property whereby the futures equals the spot price at expiration. 18. Centralized market (either an exchange or a computer system) where supply and demand are matched.1. Antarctica uses a system of fixed exchange rates, its current account deficit is usD 6 billion, and its capital account balance is uso 4 billion. Based on this information, answer the following questions. (a) What is the change in the official foreign exchange reserves of Antarctica? (b) What is the gap between the income of Antarctica and its expenditure on domestic output? (c) If there is only one other country in the world, Greenland, can you estimate the current account balance of Greenland?5. A British importer purchases goods from a French company and obtains a trade credit for the full value of the shipment (equal to GBP 100 ). How should this transaction be recorded in the BOP of the UK?Calculate the current stock price. (A) 70.75 (B) 73.63 (C) 75.81 (D) 77.87 (E) 78.04 IFM-01-18 Page 18 of 105 38. The current price of a medical company's stock is 75. The expected value of the stock price in three years is 90 per share. The stock pays no dividends. You are also given 1 ) The risk-free interest rate is positive. ii) There are no transaction costs. iii) Investors require compensation for risk. The price of a three-year forward on a share of this stock is X, and at this price an investor is willing to enter into the forward. Determine what can be concluded about X. (A) X
