Tony Begay at Saguaro Funds. Tony Begay, a currency trader for Chicago-based Saguaro Funds, uses the following futures quotes, , on the British pound (£) to speculate on the value of the pound. a. If Tony buys 5 June pound futures, and the spot rate at maturity is $1.3982/£, what is the value of her position? b. If Tony sells 12 March pound futures, and the spot rate at maturity is $1.4558/£, what is the value of her position? c. If Tony buys 3 March pound futures, and the spot rate at maturity is $1.4558/£, what is the value of her position? d. If Tony sells 12 June pound futures, and the spot rate at maturity is $1.3982/£, what is the value of her position? a. If Tony buys 5 June pound futures, and the spot rate at maturity is $1.3982/£, what is the value of her position? The value of Tony's position is $ (Round to the nearest cent. Use a minus sign if value is negative.)

Tony Begay at Saguaro Funds. Tony Begay, a currency trader for Chicago-based Saguaro Funds, uses the following futures quotes, , on the British pound (£) to speculate on the value of the pound. a. If Tony buys 5 June pound futures, and the spot rate at maturity is $1.3982/£, what is the value of her position? b. If Tony sells 12 March pound futures, and the spot rate at maturity is $1.4558/£, what is the value of her position? c. If Tony buys 3 March pound futures, and the spot rate at maturity is $1.4558/£, what is the value of her position? d. If Tony sells 12 June pound futures, and the spot rate at maturity is $1.3982/£, what is the value of her position? a. If Tony buys 5 June pound futures, and the spot rate at maturity is $1.3982/£, what is the value of her position? The value of Tony's position is $ (Round to the nearest cent. Use a minus sign if value is negative.)

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 41QA

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Tony Begay at Saguaro Funds. Tony Begay, a currency trader for Chicago-based Saguaro Funds, uses the following futures quotes on the British pound (£) to speculate on the value of the pound. If Tony buys 5 June pound futures and the spot rate at maturity is $1.3980 = £1.00, what is the value of his position? If Tony sells 12 March pound futures and the spot rate at maturity is $1.4560 = £1.00, what is the value of his position? If Tony buys 3 March pound futures and the spot rate at maturity is $1.4560 = £1.00, what is the value of his position? If Tony sells 12 June pound futures and the spot rate at maturity is $1.3980 = £1.00, what is the value of his position?
A speculator enters a futures contract for September delivery (September 19) of £62,500 on February 2. The futures exchange rate is $1.650 per pound. He believes that the spot rate for pounds on September 19 will be $1.700 per pound. The margin requirement is 2 percent. (a) If his expectations are correct, what would be his rate of return on the investment? (b) If the spot rate for pounds on September 19 is 5 percent lower than the futures exchange rate, how much would he lose on the futures speculation? (c) If there is a 65 percent chance that the spot rate for pounds will increase to $1.700 by September 19, would you speculate in the futures market?
Suppose, on a certain day in February, a speculator observes the following prices in the foreign exchange and currency futures markets: GBP/USD spot: 1.6465 March futures: 1.6425 September futures: 1.6250 December futures: 1.6130 The speculator thinks that the markets are overestimating the weakness of sterling (GBP) against the dollar. How can she act on this view to make a profit? Under what circumstances do her actions lead to a loss?
Suppose that the return on a U.K. treasury bill is eight percent annum and the return on a U.S. treasury bill is eight percent annum and that you had $1,000,000 earmarked for short term investment for a period of a month. In which of the securities would you place your money? (Assume you are not a speculator). Show your calculations. 1 British pound (spot) $1.7748 1 British pound (30-day futures) $1.7776
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On 25 July of a particular year, an American firm decided to close its account at an Australian bank on 28 August. The firm is expected to have 4 million Australian dollars in the account at the time of the withdrawal. It would then covert the funds to U.S. dollars and transfer them to a New York bank. The September Australian dollar futures contract was priced at $0.7571. Determine the outcome of a futures hedge if on 28th August the spot rate was $0.7237 and the futures rate was $0.7250. All prices are in U.S. dollars per Australian dollar. The Australian dollar futures contract covers 100,000 Australian dollars
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An FI is planning to hedge its one-year, 100 million Swiss franc (SF)-denominated loan against exchange rate risk. The current spot rate is $0.60/SF. A 1-year SF futures contract is currently trading at $0.58/SF. SF futures are sold in standardized units of SF125,000. Should the FI be worried about the SF appreciating or depreciating? Should it buy or sell futures to hedge against exchange rate risk exposure? How many futures contracts should it buy or sell if a regression of past spot exchange rates on changes in future exchange rates generates an estimated slope of 1.4? Show exactly how the FI is hedged if it repatriates its principal of SF100 million at year-end, the spot exchange rate of SF at year-end is $0.55/SF, and the forward exchange rate is $0.5443/SF.
On Monday morning, a trader takes a long position in Australian dollars (AUD) future currency contract that matures on Thursday afternoon. The agreed upon price is USD76691/AUD for a currency lot of AUD100,000. A trader needs AUD 175,000. At the close of trading on Monday, the futures price falls to USD0.76620 = 1 AUD. At Tuesday close, the price further falls down to USD0.76602 = 1 AUD. At Wednesday close, the price rises to USD0.76658 = 1 AUD. At Thursday close, the price further rises to USD0.76698 = 1 AUD and the contract matures. The trader takes delivery of the AUD at the prevailing price of USD0.76698 = 1 AUD. What will be the trader’s profit (loss)? Gain of USD 7 Gain of USD 70 Loss of USD 7 Loss of USD 70
Croissant, a french company expects to pay US$1,200,000 to a US supplier in late November. It is now late July, and the current spot exchange rate is €1 = $1.2200. September and December dollar-euro currency futures are currently being traded at $1.2165 and $1.2170 respectively. The company wants to hedge its exposure with currency futures. The Euro futures are available for a standard quantity of 125000 and the tick size is 0.0001.(i) Explain how Croissant might establish a hedge against exchange rate risk.(ii) Suppose that in November when the dollars are paid, the spot rate has moved to 1.2040 and the futures price is 1.2030. Show the outcome of the hedge and calculate the effective exchange rate. (iii) Comment on the basis risk if any.
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