Exlz Take two forwards contracts with delivery price F0 and K. a) What is the cash flow difference between those two contracts at time T? b) What is the NPV of this difference at t=0? c) Given that the value of the forward (with delivery price F0) at t=0 is 0, what is the value of the forward contract with delivery price K at t=0 ? EXZ: Assume that the size of the forward contract is 1000 British pounds for US dollars a) What is the value of a 1000 E investment at time T if, at time t:0, this investment is invested at a risk free rate rf and if (also at t=0) one sells a long forward contract with price F0? b) What is the value of a 1000 E investment at time T if this investment is converted in $ in the spot market (at So) at t=0 and invested at a rate r? c) Given that those two strategies must give the same result in the absence of arbitrage opportunities, find the price of the futures contract F0. (1) Explain why a foreign currency can be treated as an asset providing a known yield. EX3: It is January and a company knows that it will need to purchase 2,000 barrels of crude oil in November. The spot price is $50 per barrel and the interest rate is 1%. Oil futures contract are traded for November and the contract size is 1,000 barrels. The initial margin requirement is $6,000/ contract. a) What is the effective price paid in November if the company buys futures contracts today? b) Tomorrow, the futures price is $51 what is the new margin balance? c) Assume now that only December futures contracts are available. In November, the spot and futures prices are $55 and $54 respectively. What is the effective price paid by the company