International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Is there an exchange that widely shares historical settlement prices on Futures contracts? I looked at the Chicago Mercantile Exchange and it would only show me the settlement prices for the past week and I need more historical data.
Explain why the forward interest rate is less than the corresponding futures interest rate calculated based on a Eurodollar futures contract.
Are there any limitations in the use of currency futures contracts when locking in a specific exchange rate at which company can sell all the pounds it expects to receive in each of the upcoming months?
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- a) define the following, and discuss the difference between them at origination, before expiration, and at expiration. ◦forward price and the value of a forward contract ◦futures price and the value of a futures contract b) discuss the assumptions under which futures and forward prices can be considered the same. c) describe how to incorporate discrete and continuous dividends into futures contracts on stocks and stock indices. d) explain and discuss the use of interest rate parity in pricing foreign currency forwards and futures. e) describe how spot prices are determined using the cost-of-carry model.arrow_forwardSuppose, 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?arrow_forwardIf you buy 2 Eurodollar futures contracts will your contracts gain in value when LIBOR rates increase or decrease?arrow_forward
- A currency speculator wants to speculate on the future movements of the €. The speculator expects the € to appreciate in the near future and decides to concentrate on the nearby contract. The broker requires a 2% Initial Margin (IM) and the Maintenance Margin (MM) is 75% of IM. Following € Futures quotes are currently available from the Chicago Mercantile Exchange (CME). Euro (CME) - €125,000; $/€ Open High Low Settle Change Open Interest June 1.2216 1.2276 1.2175 1.2259 -0.0018 255,420 Sept 1.2229 1.2288 1.2189 1.2269 - 0.0018 19,335 In addition to the information provided above, consider the following CME quotes that are available at the end of day one’s trading: Euro (CME) - €125,000; $/€ Open High Low Settle Change Open Interest June 1.2216 1.2276 1.2175 1.2176 -0.0083…arrow_forwardA one-year gold futures contract is selling for $1,247. Spot gold prices are $1,200 and the one-year risk-free rate is 2%. a) According to spot-futures parity, what should be the futures price? b) What risk-free strategy can investors use to take advantage of the futures mispricing, and what would be the profits from that strategy?arrow_forwardReading futures prices. Refer to Exhibit 7.2 for futures prices.a. What is the March 2012 futures price for Australian dollars and Japanese yen?b. What is the cross-rate for March 2012 Japanese yen price of the Australian dollar futures contract?arrow_forward
- a)define and explain convenience yield, and describe how it is incorporated into the futures pricing model. b)discuss the debate on whether risk premium should be included in the pricing of futures and forward contracts. c) define backwardation, normal backwardation, contango, and normal contango. d) discuss the relationship between the prices of puts, calls, and forward/futures contracts on the same underlying asset using the put-call-forward/futures parity. e) discuss the boundary conditions on the prices of American and European call option contracts on futures.arrow_forwardWhen the futures price is equal to the spot rate of a given currency, and the foreign country exhibits a higher interest rate than the domestic interest rate, astute investors may attempt to simultaneously __________ the foreign currency, invest it in the foreign country, and ___________ futures in the foreign currency. Select one: a. buy; buy. b. sell; buy. c. buy; sell. d. sell; sell.arrow_forwardTony 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?arrow_forward
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