QUESTION 1

Which of the following is an advantage of using currency futures contracts? large number of currencies available

several expiration (delivery) dates available

ability to liquidate prior to the expiration (delivery) date

none of the above

10 points QUESTION 2

Use the following information to answer the next three questions.

On Monday, an American company decides to hedge a receipt of British pounds by creating a portfolio consisting of two pound futures contracts that mature on Thursday. Each contract has 62,500 pounds attached. The futures price on Monday is $1.85/BP. Assume that the initial margin and maintenance margin is $1485 and $1150 per contract, respectively. The futures prices over the next three days (Tuesday-Thursday) are as follows: $1.855, $1.865, and $1.86.

How much money will the investor need to open his margin position?

$121,875

$2300

$125,000

$2970

10 points QUESTION 3

Find the investor's ending margin balance on Tuesday. (Assume any deficits are eliminated to keep the account open and any excess funds remain in the account)

2345

2970

2000

3595

10 points QUESTION 4

Find the investor's ending margin balance on Thursday. (Assume any deficits are eliminated to keep the account open and any excess funds remain in the account)

3595

4220

1720

11095

10 points QUESTION 5

Use the following information to answer the next two questions:

The pound-dollar exchange rate is $1.355/BP on 9/30, but you believe the pound will appreciate relative to the dollar over the next few days. You decide to open a position consisting of five futures contracts to trade based on your belief on 9/30. Futures contracts on the pound have 90,000 pounds attached. The futures price 9/30 is $1.355. Your broker requires an initial margin of $13,000 per contract and a maintenance margin of $9,000 per contract.

Find your ending margin account balance day after you open your position (10/1) if the futures price is $1.395 on that day. Assume any deficits are eliminated to keep the account open and any excess funds remain in the account.

47,000

67,600

83,000

62,400

10 points QUESTION 6

Assume that you kept your account open from the previous question. The futures price on 10/2 is $1.405 per pound. What would be your ending margin balance on 10/2? Assume any deficits are eliminated to keep the account open and any excess funds remain in the account.

87,500

65,000

51,500

68,250

10 points QUESTION 7

Use the following information to answer the next 3 questions

After reading several reports, an investment banker believes that the dollar will depreciate relative to the euro over the next few days. The banker decides to use five euro futures contracts to trade based on his belief. Each contract has 100,000 euros attached. The initial and maintenance margin is 15000 and 10000 per contract, respectively. The futures price on the day the banker opened his position (Tuesday) was $1.625.

The futures price on Wednesday is $1.605. Find the investor's ending margin balance on Wednesday. (Assume any deficits are eliminated to keep the account open and any excess funds remain in the account)

8000

65000

85000

75000

10 points QUESTION 8

The futures price on Thursday is $1.55. Find the investor's ending margin balance on Thursday. (Assume any deficits are eliminated to keep the account open and any excess funds remain in the account)

37,500

75,000

112,500

57,500

10 points QUESTION 9

The futures price on Friday is $1.60. Find the investor's ending margin balance on Friday. (Assume any deficits are eliminated to keep the account open and any excess funds remain in the account)

62,500

87,500

100,000

75,000

10 points QUESTION 10

One distinction between futures and forward contracts is

Forward contracts can be used to hedge and speculate, while futures contracts are only used for hedging purposes.

Forward contracts are highly standardized.

Futures contracts mark to market.

Futures contracts highly specialized.

10 points