DEF PLC, an oil extraction company, wants to hedge its exposure to crude oil prices. Therefore, on 17th June 2020 it negotiates a short futures contract for 50,000 barrels of Brent crude deliverable December 2020. The exchanges initial margin requirement is $100,000 and the margin call threshold is $40,000. The dynamics of the Brent futures prices shortly after the contract has been negotiated are the following:

Date	Futures price, $ per barrel
17/06/2020	25.45
18/06/2020	25.41
19/06/2020	24.14
22/06/2020	26.62
23/06/2020	29.87
24/06/2020	31.12
25/06/2020	30.89
26/06/2020	32.34
29/06/2020	31.99
30/06/2020	31.68
01/07/2020	31.61

Question 6: Identify the total payoff of the futures contract at 1^st July 2020

a) $308,000

b) -$308,000

c) $3,500

d) -$3,500

e) $36,500

Question 7: Identify the number of margin calls triggered by 1st July 2020

a) 0

b) 1

c) 2

d) 3

e) 4

Question 8: Calculate the total margin payments payable to the exchange up to 1^st July 2020

a) $444,500

b) $344,500

c) $100,000

d) $65,500

e) $165,500

On 1^st July 2019 the spot price is $30.17 per bushel, the annual risk-free interest rate is 1.30% per annum and the present value of rental payments for the warehouse sufficient to store 50,000 barrels of oil over a 6-month period is $100,000.

Question 9: Calculate the value, if any, of the riskless profit that DEF can obtain from arbitraging on the futures market, assuming that all rent is payable at the beginning of the storage period and interest on loans and deposits is charged semi-annually.

a) $18,226

b) $28,000

c) $37,774

d) $182,240

e) No riskless profit can be obtained from arbitrage

Question 10: Calculate the present value of rental payments at which DEF would be indifferent towards arbitrage, assuming no trading costs

a) $62,226

b) $72,000

c) $81,774

d) $137,774

e) Arbitraging is not beneficial to DEF regardless of the present value of rental payments