You hedged your company's exposure to the GBP appreciation against the USD by entering one unit of December GBPUSD foreign exchange futures contract (each GBPUSD futures contract with GBP 62,500) at the GBPUSD futures exchange rate of 1.1380 on September 26, with the GBPUSD spot exchange on that day at 1.1370. On October 10, you discovered that the December GBPUSD futures was quoted at 1.1330, and the spot rate for GBPUSD on that day was 1.1315. It is now October 11; you observe that the December GBPUSD futures is quoted at 1.1290, and the spot rate for GBPUSD is 1.1278.

1. What is your hedging position (to buy or to sell) using the GBPUSD futures?

2. Who may be your counterparty?

3. What is the total profit or loss on this futures position as of October 10? [Hint: when you mark a future contract to market, always use the future exchange rates maturing on the same day, not the spot exchange rates.]

4. If you deposited the required initial margin, which is $2,800, on September 26, and had not touched the account or gotten any margin calls since making that cash deposit until October 10. The maintenance margin is $2,250. What was your margin account balance on October 10?

5. Given all the information from part d, what is the total profit or loss on this futures position as of October 11? What is your daily profit or loss on this futures position on October 11? What was your margin account balance on October 11 if you do not do anything on your margin account? What happens to your margin account and futures position on October 11, and what must you do?

6. List three differences between futures and forwards.