The question:

[g] [3pta] Let F1 clenete the nal eettlement priee ef the Nikkei index and EI denete the UEDIJPY aput exchange rate at the settlement date {March 5, EDIE]. Write nut the formula efthe nal payn' tn ynur pceinn on March 3, 2313! Hewett-p your equatinn tn exprem the payn' in terme- nfthree elements: [I] the spread between the ten: futures prices [the quanta spread]: F3 F\" [2] the change in exchange rate Elem and {3] theehar1geintheNikkeiindexF1:F1 F1.r [ifwetakethe Nikkeienfntnmpeeaa a dirty prtelqi.r fer the underlying]. Anatomy of the Spread Consider the following trade: sell or short one USU-Nikkei futures at l$ and buy or go long a number of JP?\" denominated contracts at a price of lag. LetT denote the Final Settlement Price of Nikkei 225 futures and )1 denote the spot JFY-USD exchange rate on the expiration date of Nikkei 225 futures.2 At contract expiration, the position's profitfloss (PM, expressed in USD, may be denoted as follows. PfL = -5(f_ .3) + oxsoxf- lg) Picking the conveniently chosen the spread ratio d. equals 1 f 1x, where x is the spot JFY-USD exchange rate at the time the trade originally is executed,3 the P.-"L is now reduced as follows: PIL = 5(r' 19+ 5130 a) =5(51)(fr)+5(r$I) X