The Risk Manager at CC Investments, who is responsible for all derivative transactions, made the following transitions: Transaction one: stock-index futures The Risk Manager bought one JSE (Johannesburg Stock Exchange) ALSI (All Share Index) futures contract when the index was 55 000. The contact size is R10 per point.

Transaction two: interest rate swap The Risk Manager believes interest rates will increase in future and wants to hedge the firms floating-rate obligation exposure against interest rate changes. He entered into a swap agreement with a bank to pay 7% on a notional amount of R100 million and received a three-month Jibar rate from the bank.

Transaction three: commodity futures The Risk Manager sells 10 futures contracts on wheat. One futures contract on wheat is made up of 50 metric tonnes. The futures price on the wheat is R3 200 per ton upon initiation of the contract. The contract requires a 10% initial margin and a maintenance margin of 8%.

4.1 If the ALSI moves to 53 000, what would the profit (or loss) for transaction one be? (1) 4.2 If, at the reset date, the three-month (91-day) Jibar rate is 7.5%, calculate the net cash flow for transaction two, and indicate who would pay the amount? Use a 365-day count convention. Show all calculations when answering this question. Round-off your final answer to two decimal places. (3) 4.3 Calculate the initial margin and maintenance requirements for the 10 contracts in transaction three. (3) 4.4 For transaction three, the account is marked-to-market daily. For the first three days, the closing futures price on wheat per ton was recorded as: Day 1 = R3 250; Day 2 = R3 280; and Day 3 = R3 210. Using the mark-to-market system, replicate and complete the following table for the 10 futures contracts on wheat: (7)

Day Opening balance Funds deposited Settlement price Price change Gain/ (Loss) Closing balance 0 3 200 N/A N/A 1 3 250 2 3 280 3 3 210