$.$ Risk of Currency Futures. Currency futures markets are commonly used as a means of capitalizing on shifts in currency values, because the value

of a futures contract tends to move in line with the

change in the corresponding currency value. Recently, many currencies appreciated against the dollar. Most speculators anticipated that these currencies would continue to strengthen and took large

buy positions in currency futures. However, the

Fed intervened in the foreign exchange market by

immediately selling foreign currencies in exchange

for dollars, causing an abrupt decline in the values

of foreign currencies $($as the dollar strengthened$).$

Participants that had purchased currency futures

contracts incurred large losses. One floor broker responded to the effects of the Fed$$s intervention by

immediately selling $300$ futures contracts on British

pounds $($with a value of about $$30$ million$).$ Such actions caused even more panic in the futures market.

a$.$ Explain why the central bank$$s intervention

caused such panic among currency futures traders

with buy positions.

b$.$ Explain why the floor broker$$s willingness to sell

$300$ pound futures contracts at the going market

rate aroused such concern. What might this action

signal to other brokers?

c$.$ Explain why speculators with short $($sell$)$ positions could benefit as a result of the central bank$$s

intervention.

d$.$ Some traders with buy positions may have responded immediately to the central bank$$s intervention by selling futures contracts. Why would

some speculators with buy positions leave their positions unchanged or even increase their positions

by purchasing more futures contracts in response to

the central bank$$s intervention?