finance 3616 in UNSW answers are cdgegb from q1-6
The following information is used for the next SIX questions Question 1 Fedsmoker Protocols is a firm that is headquartered in France. Resulting from the recent sale of some Featherin' It pillows, the firm has a CHF32.142 million Which of the following is closest to the worst case possible scenario that the net receivable that will be paid by a customer based in Switzerland exactly 300 days realized value in Euro of Fedsmoker Protocols's receivable could have been if the from today (at t=300). firm had used an option hedge to limit the impact of unfavourable exchange rate changes? As the Chief Financial Officer (CFO) of Fedsmoker Protocols, you have requested a. EUR24,491,868 quotes from your dealer, FGT RTD Group, to assist you with your hedging deci- b. EUR24,337,922 sion. Your client relationship manager at the bank, Sue Wu, has in turn provided you with the following foreign exchange, derivative, and eurocurrency rate quotes c. EUR24,322,905 d. EUR42,429,716 (all based on a 360-day year): e. EUR40, 745,512 f. EUR25,328,232 Bid Ask g. EUR24,290,920 Spot rate: EURO.7896/CHF EURO.7902/CHF h. EUR27,104,295 Forward rate (300 days): EURO.7687/CHF EURO.7710/CHF i. EUR24,413,885 300-day put at EURO.8000/CHF strike EURO.0400/CHF EURO.0428/CHF j. EUR27,089,278 300-day call at EURO.7500/CHF strike EURO.0348/CHF EURO.0376/CHF 300-day CHF interest rate 1.00% p.a. 4.10% p.a. 300-day EUR interest rate 1.17% p.a. 1.31% p.a. In addition, futures contracts on the Swiss franc that expire in 305 days (i.e. at t=305) currently trade on the market at a rate of EURO.7717/CHF. When using futures, you must follow proto by closing out any open contracts on the payment date of the underlying receivable or payable being hedged. Each futures contract on the Swiss franc has a size of CHF125,000, an initial margin of EUR2,700, and a maintenance margin of EUR1,650. Fedsmoker Protocols's broker requires Question 2 a fee of EUR6.00 per contract for each trade made, which includes all exchange, regulatory, and other fees. Which of the following is closest to the actual net realized value in Euro of Fedsmoker Protocols's receivable if the firm had used an option hedge to limit Assume that Fedsmoker Protocols funds any up-front hedging costs (e.g. brokerage the impact of unfavourable exchange rate changes? fees or option premiums) by borrowing the required amount in their domestic a. EUR24,322,905 currency. However, the opportunity cost of any futures margin requirements can b. EUR27,368,913 be ignored as the firm earns a rate of return on the margin balance commensurate c. EUR27,444,875 with what the they would have earned on those same funds elsewhere. d. EUR27,353,895 Although not known by you at the time you make any hedging decision (i.e. at e. EUR40,745,512 t=0), the below table shows what the prices of the above futures contract and the f. EUR27,321,911 spot rates eventually turn out to be in the period around the payment of your g. EUR27,522,858 receivable. All values are the closing prices for that day and are the prices at h. EUR38,193,176 which you would execute any trades. i. EUR25,328,232 j. EUR30, 135,286 Day Spot Bid Spot Ask Futures Price t=300 EURO.8943/CHF EURO.8949/CHF EURO.8943/CHF t=301 EURO.9007/CHF EURO.9013/CHF EURO.9007/CHF t=302 EURO.9131/CHF EURO.9137/CHF EURO.9132/CHF t=303 EURO.9066/CHF EURO.9072/CHF EURO.9068/CHF t=304 EURO.9107/CHF EURO.9113/CHF EURO.9109/CHF t=305 EURO.9207/CHF EURO.9213/CHF EURO.9210/CHF FINS3616 2020 T3 Peter Kjeld Andersen FINS3616 2020 T3 2 Peter Kjeld AndersenQuestion 3 Question 5 Which of the following is closest to the net realized value in Euro of Fedsmoker Which of the following is closest to the net realized value in Euro of Fedsmoker Protocols's receivable if the firm had used a forward market hedge? Protocols's receivable if the firm had used futures contracts to hedge it? a. EUR25,398,608 a. EUR24,793,776 b. EUR40,706,687 b. EUR23,945,227 c. EUR41,688, 716 c. EUR32,705,502 d. EUR41,813,451 d. EUR28,744,591 e. EUR40,675,778 e. EUR32,682,099 f. EUR24,781,482 f. EUR31,512,040 g. EUR24,707,555 g. EUR24,802,965 h. EUR25,379,323 h. EUR24,803,981 i. EUR40,348,734 j. EUR34,388,839 Question 6 Question 4 Assume that Fedsmoker Protocols met all required margin calls over the life of Which of the following is closest to the net realized value in Euro of Fedsmoker their futures position and did not withdraw any excess funds from the margin Protocols's receivable if the firm had used a money market hedge for it? account when they had the opportunity. a. EUR41,659,355 b. EUR24,798,947 If the final balance on the margin account was EUR870,587.50 at the time that the c. EUR41,577,747 futures position was closed, which of the following is closest to the total amount d. EUR24,664,996 of funds that Fedsmoker Protocols was required to deposit over the life of their e. EUR24,780,118 position in order to meet margin calls? In your answer, exclude the deposit of the f. EUR41,609,341 initial margin. a. EUR3,977,075.00 g. EUR24,847,622 h. EUR24,722,877 b. EUR4,115,212.50 i. EUR24,828,756 c. EUR4,224,437.50 j. EUR41,691,011 d. EUR3,845,362.50 e. EUR4,356, 150.00 f. EUR3,671,887.50 g. EUR3,395,612.50 h. EUR3,491,987.50
