The current Dollar-Pound exchange rate is 1.60 dollars per British Pound. The U.S. and British risk-free interest rates (annualized, continuously compounded) are 5% and 7.5%, respectively. Answer the following questions. What is the no arbitrage forward price of the British Pound for a 6-month forward contract? The current spot price of silver is $12.50 per ounce, and the risk-free rate of interest is 5.13% per year with annual compounding. The standard cost to store large quantities of silver in a secure storage facility is $0.05 per ounce every four months payable in advance. Answer the following questions. (Hint: What's the effective continuously compounded rate?) A. Compute the delivery price for a 12-month forward contract taken out today (i.e., the forward price that is consistent with a zero value for the forward contract). B. Suppose the 12-month forward contract referred to in part A is to buy 100,000 ounces of silver, and suppose that we are now 8 months into the life of the contract (i.e., the contract has a remaining maturity of 4 months). Compute the market value of this previously-issued forward contract assuming the spot price of silver in 8 months is $15.55 per ounce. In the following situations, indicate whether a long or short position is appropriate and compute the optimal number of contracts. A. A jewelry manufacturer would like to hedge the purchase of 1,000 ounces of gold using gold futures. One gold futures contract is for the delivery of 100 ounces of gold. B. A wholesaler of pork bellies would like to hedge the sale of 280,000 pounds of pork bellies using pork belly futures. One pork belly futures contract is for the delivery of 40,000 pounds. C. An energy products distributor has a fixed-price contract to sell 36,000 barrels of oil at a price of $28 per barrel in 3 months. One oil futures contract is for the delivery of 1,000 barrels of oil. D. Statistical analysis indicates that the secondary-market price of Pokeman cards is inversely correlated with the futures price of baseball cards. Indeed, a regression of the secondarymarket price of Pokeman cards on the futures price of baseball cards has a statistically significant (slope) coefficient of 2.60 and an R2 of 75%. A dealer in Pokeman cards would like to use this information to hedge variation in the value of his inventory of 10,000 Lokeman cards. One baseball card futures contract is for the delivery of 500 baseball cards. E. Platinum and gold prices tend to be highly correlated. However, platinum prices tend to be less volatile than gold prices. A regression of the spot price of platinum on the futures price of gold has a statistically significant (slope) coefficient of 0.65 and an R2 of 89%. A Russian platinum mine would like to use this information to hedge the sale of 1,200 ounces of platinum. One gold futures contract is for the delivery of 100 ounces of gold. The current Dollar-Pound exchange rate is 1.60 dollars per British Pound. The U.S. and British risk-free interest rates (annualized, continuously compounded) are 5% and 7.5%, respectively. Answer the following questions. What is the no arbitrage forward price of the British Pound for a 6-month forward contract? The current spot price of silver is $12.50 per ounce, and the risk-free rate of interest is 5.13% per year with annual compounding. The standard cost to store large quantities of silver in a secure storage facility is $0.05 per ounce every four months payable in advance. Answer the following questions. (Hint: What's the effective continuously compounded rate?) A. Compute the delivery price for a 12-month forward contract taken out today (i.e., the forward price that is consistent with a zero value for the forward contract). B. Suppose the 12-month forward contract referred to in part A is to buy 100,000 ounces of silver, and suppose that we are now 8 months into the life of the contract (i.e., the contract has a remaining maturity of 4 months). Compute the market value of this previously-issued forward contract assuming the spot price of silver in 8 months is $15.55 per ounce. In the following situations, indicate whether a long or short position is appropriate and compute the optimal number of contracts. A. A jewelry manufacturer would like to hedge the purchase of 1,000 ounces of gold using gold futures. One gold futures contract is for the delivery of 100 ounces of gold. B. A wholesaler of pork bellies would like to hedge the sale of 280,000 pounds of pork bellies using pork belly futures. One pork belly futures contract is for the delivery of 40,000 pounds. C. An energy products distributor has a fixed-price contract to sell 36,000 barrels of oil at a price of $28 per barrel in 3 months. One oil futures contract is for the delivery of 1,000 barrels of oil. D. Statistical analysis indicates that the secondary-market price of Pokeman cards is inversely correlated with the futures price of baseball cards. Indeed, a regression of the secondarymarket price of Pokeman cards on the futures price of baseball cards has a statistically significant (slope) coefficient of 2.60 and an R2 of 75%. A dealer in Pokeman cards would like to use this information to hedge variation in the value of his inventory of 10,000 Lokeman cards. One baseball card futures contract is for the delivery of 500 baseball cards. E. Platinum and gold prices tend to be highly correlated. However, platinum prices tend to be less volatile than gold prices. A regression of the spot price of platinum on the futures price of gold has a statistically significant (slope) coefficient of 0.65 and an R2 of 89%. A Russian platinum mine would like to use this information to hedge the sale of 1,200 ounces of platinum. One gold futures contract is for the delivery of 100 ounces of gold
