Semester 2, 2012
Assignment 1
08/08/2012
Question 1
(a) The investor sells 100,000 pounds for $1.9000 per pound when the securities industry place exchange rate is only $1.8900 per pound.
1.9000 $/£ - 1.89000 $/£ = 0.01 $/£
thusly the investor entrust elaboration boodle of 0.01 $/£ from the difference of the exchange rate.
The gain is £100,000 0.01$/£ = $1,000
(b) The investor sells 100,000 pounds for $1.9000 per pound when the market exchange rate is $1.9200 per pound.
1.9000 $/£ - 1.92000 $/£ = -0.02 $/£
accordingly the investor will suffer a loss of 0.02 $/£ from the difference of the exchange rate.
The loss is £100,000 0.02$/£ = $2,000
Question 2
The follow profit is Total sales (Future wrong Closing price)
Therefore total profit is
40,000 pounds ($0.9120/pound - $0.8830/pound) = $1,160
40,000 (0.9120-0.8880) = $960 is generated between October 2009 and December 31 2009. And 40,000 (0.8880-0.8830) = $200 is generated between January 1, 2010 and January 21, 2010.
Therefore,
(a) If the stuff is a hedger, the accounting profit in 2010 is $0 and $1,160 in 2011 and will be taxed on the whole profit generated in 2009.
(b) If the contract is a speculator, $960 will be taxed in 2010 and $200 in 2010.
Question 3
=0.8, =0.65, =0.
81, and
Therefore the Optimal hedge ratio is
0.8 (0.65/0.81) = 0.642
This means that the size of the futures nonplus should be 64.2% of the size of the companys exposure in a 3-month hedge.
Question 4
(a) = $40, r = 0.1, T = 1, and
Therefore,
The forward price is $44.21, and the initial value is zero.
(b) = $40, r = 0.1, T = 1, and
F0 =
= $45, K = $44.21, r = 0.1, T = 0.5, and
The forward price is $47.31 and the value of the forward contract is $2.95.
Question 5
c = 0.1, y = 0.04, T = 4/12, and
Therefore,
F0 =
The unquestionable futures price is only 405. This shows that the index futures price is...If you want to sign a full essay, order it on our website: Orderessay
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