Problem $3$

Assume you are short in $2$ currency futures on JPY$.$ The futures price is JPY$/$USD $=145\mathrm{.}84.$ The

contract lot is $12,500,000$ and it will be settled in cash in three months. Specify your cash flows

for the two possible spot market outcomes $($at settlement date$)$: JPY$/$USD $=140\mathrm{.}12$ and JPY$/$USD

$=154\mathrm{.}48.$

Problem $4$

Assume you are holding a stock index portfolio whose current market value is $$3,870,210$ and

are about to sell it in six months. The current market value of index underlying is $5,160\mathrm{.}28.$ You

are facing the risk of price drop and are developing a futures hedge strategy. What should this

strategy be$,$ given the futures price being $$5,050\mathrm{.}44?$ Describe your hedge strategy. Provide

detailed computations on your position in six months comparing the futures hedge strategy cash

flows and the cash flows for the two possible spot market outcomes: spot market index value

being $$5,000\mathrm{.}56$ or it being $$5,100\mathrm{.}42.$ The futures contract multiplier is $$250$ and there is no

transaction cost. Should a strategy like this eventually be implemented?