Need help on international F IN homework due in 2 hour..

Individual Assignment 2 - Part C International Finance 3551 (Spring 2017 - 002/003/004) (Instructor: Francesca Brusa) Submission: Thursday, April 6 Answers must be clearly legible (typed or handwritten). Please include and briefly explain intermediate steps. Topic 6: Currency Futures and Options Markets (Chapter 8) 1. On Monday morning, an investor takes a long position in a pound futures contract that matures on Wednesday afternoon. The agreed upon price is $1.78 for 62,500. At the close of trading on Monday, the futures price has risen to $1.79. At Tuesday close, the price rises further to $1.80. At Wednesday close, the price falls to $1.785, and the contract matures. The investor takes delivery of the pounds at the prevailing price of $1.785. Assume the initial margin is $1,620 and the maintenance margin is $1,200. Please calculate: a) The daily cash flows on the investor's account. b) Any margin call on the account. c) The net loss/profit on the futures contract. d) Verify that the net loss/profit on the futures contract equals the difference between the total payment on the futures contract and the total payment due on delivery day (Wednesday) for the unhedged position. 2. Apex Corporation must pay its Japanese supplier 125 million in three months. It is thinking of buying 20 yen call options (contract size is 6.25 million) at a strike price of $0.00800 in order to protect against the risk of a rising yen. The premium is 0.015 cents per yen. Alternatively, Apex could buy 10 three-month yen futures contracts (contract size is 12.5 million) at a price of $0.007940 per yen. The current spot rate is 1 = $0.007823. Suppose Apex's treasurer believes that the most likely value for the yen in 90 days is $0.007900, but the yen could go as high as $0.008400 or as low as $0.007500. a) Calculate Apex's gains and losses on the call option position and the futures position assuming that the future spot rate will be at: i) the strike price, ii) the minimum forecasted value, iii) the maximum forecasted value, iv) the most likely forecasted value, and (v) the futures agreed-on price. Ignore transaction costs and margins. b) What is Apex's breakeven future spot price on the option contract? On the futures contract? c) Calculate Apex's cash flows on the unhedged position at the five future spot prices listed in question a). d) Diagram the total cash flows on the unhedged position and the futures position (Graph 1) and the total cash flows on the unhedged position and the call option position (Graph 2) at the five future spot prices listed in question a). Indicate profits and losses on the hedged position on the diagram. Hint: Plot future spot prices on the x-axis and total cash flows on the y-axis. e) Apex is very confused about the findings above and decides to hire you as a FX consultant. What FX strategy would you recommend? Justify your answer. 3. Suppose that the interbank forward bid for March 20 on Swiss francs is $0.7827 at the same time that the price of IMM Swiss franc futures for delivery on March 20 is $0.7795. How much of an arbitrage profit could a dealer earn per March Swiss franc futures contract of SFr 125,000? 4. Citigroup sells a call option on euros (contract size is 500,000) at a premium of $0.04 per euro. If the exercise price is $0.91 and the spot price of the euro at date of expiration is $0.93, what is Citigroup's profit (loss) on the call option? 5. Suppose that Texas Instruments must pay a French supplier 10 million in 90 days. a) Explain how TI can use currency futures to hedge its exchange risk. How many futures contracts will TI need to fully protect itself? Assume the contract size is 125,000. b) Explain how TI can use currency options to hedge its exchange risk. How many options contracts will TI need to fully protect itself? Assume the contract size is 62,500. 6. Suppose that Bechtel Group wants to hedge a bid on a Japanese construction project. Since the yen exposure is contingent on acceptance of its bid, Bechtel decides to buy a put option for the 15 billion bid amount rather than sell it forward. In order to reduce its hedging cost, however, Bechtel simultaneously sells a call option for 15 billion with the same strike price. Bechtel reasons that it wants to protect its downside risk on the contract and is willing to sacrifice the upside potential in order to collect the call premium. a) Diagram Bechtel's profits/losses on each contract (long put and short call). b) Diagram Bechtel's total profits/losses (both contracts jointly). c) Comment on Bechtel's hedging strategy. Is Bechtel really protecting its downside risk? What if Bechtel loses its bid and the yen appreciates? 7. A trader executes a "bear spread" on the Japanese yen consisting of a long PHLX 103 March put and a short PHLX 101 March put. The option premium for the 103 put is $0.0281 and the option premium for the 101 put is $0.016. Assume the contract is worth 6,250,000. [This means that the strike price of the long put is $1.03 and the strike price of the short put is $1.01. Both options are traded on the Philadelphia Stock Exchange, now known as NASDAQ OMX PHLX (PHLX).] a) What is the net cost of the bear spread? b) What is the maximum amount the trader can make on the bear spread in the event the yen depreciates against the dollar? c) Redo your answers to parts a) and b) assuming the trader executes a "bull spread\" consisting of a long PHLX 97 March and a short PHLX 103 March call. The option premium is 0.0321$/ and 0.0196$/ for the long call. What is the trader's maximum profit? Maximum loss? 8. Morgan Stanley buys a call option on euros (contract size is 500,000) at a premium of $0.04 per euro. If the exercise price is $0.91 and the spot price of the euro at date of expiration is $0.93, what is Morgan Stanley's profit (loss) on the call option? 9. Fluor Corporation has just made a French euro bid on a major project located in France. It won't find out for 60 days whether it has won the contract. There will be a 10% signing bonus payable to the winner in euros. What is the best way to protect against currency risk on its bid for Fluor? 10. How can you speculate on an appreciation of the Japanese yen