Chapter 5, Problem 3IEE

The Mexican peso futures contract is trading at 0.07713 $/MXN. Contract size for the Mexican peso future is 500,000 pesos.  You believe the spot price will be 0.08365 $/MXN at expiration.  What speculative position would you enter into to profit from your beliefs?  Calculate your anticipated profits assuming you take a position in three contracts.  What is the size of your profit or loss if the futures price is indeed an unbiased predictor of the future spot price and this price materializes?   Do problem 1 again assuming you believe the spot price will be 0.07061 $/MXN.

(a) Suppose a trader takes a position on June 5th 2021, in one September 2021 EURO (EUR) future contract at USD1.3094/EUR. The trader holds the position until the last day of trading when the spot price is USD1.2939/EUR. This will be the final settlement price because of price convergence. The trader has EUR125,000 for this investment. (i) If the trader had a long position and he was a speculator, calculate his profit or loss for the position above. (ii) If the trader had a short position and he was a speculator, calculate his profit or loss for the position above. (iii) If the trader had a long position and he was a hedger, calculate his profit or loss for the position above. (iv) If the trader had a short position and he was a hedger, calculate his profit or loss for the position above. (b) Discuss factors that you would consider in evaluating the political risk associated before making FDI in a foreign country.

On October 1, 2010, the spot price of the Euro was $1.46, and the price of the December 2010 futures contract was $1.45. During October 2010 the Euro appreciated, so that by November 1, 2010, it was selling for $1.51. What do you think happened to the price of the December 2010 Euro futures contract during November 2010? Give your reasoning?