Chapter-8-Questions-1234Problems-3457

Question3AmberMcclain.AmberMcclain,thecurrencyspecultorwemetearlierinthechapter,nowsellseightJunefuturescontractsfor500,000pesosattheclosingpricequotedinExhibit8.1MaturityOpenHighLowSettleChangeHighLowOpenInterestMar.10953.10988.10930.10958....11000.0977034,481June.10790.10795.10778.10773....10800.097303,405Sept.10615.10615.10610.10573....10615.099301,481a.Whatisthevalueofherpositionatmaturityiftheendingspotrateis$.12000/Ps?Shortpositions:-Ps500,000*($.12000/Ps-$.10773/Ps)=$6,135b.Whatisthevalueofherpositionatmaturityiftheendingspotrateis$.09800/Ps?Shortpositions:-Ps500,000*($.09800/Ps-$.10773/Ps)=-$4,865c.Whatisthevalueofherpositionatmaturityiftheendingspotrateis$.11000/Ps?Shortpositions:-Ps500,000*($.11000/Ps-$.10773/Ps)=$1,135Shortpositions:-Nationalprincipal*(spot-futures)Longpositions:Nationalprincipal*(spot-futures)Problems4BlackRiverInvestmentJenniferMagnussen,AcurrencytraderforChicago-basedBlackRiverInvestments.Usesthefuturesquotes(Shownatthebottomofthispage)ontheBritishpoundtospeculatelateonlateonitsvalue.BritishPoundFutures,US$/pound(CME)Contract=62500poundsMaturityOpenHighLowSettleChangeHighLowOpenInterestMarch1.42461.42681.42141.42280.00321.471.38125605June1.41641.41881.41461.41620.0031.4551.391809(a)IfJenniferbuys5Junepoundfutures,Andthespotrateatmaturityis$1.3980/pound,Whatisthevalueofherposition?Solution:Value(loss)=Notionalprincipal*(Spot-Future)Value(loss)=5*62500*($1.398-$1.4164)=-$5750Valueofherposition=$2500*5-$5750=$6750(b)IfJennifersells12Marchpoundfutures,Andthespotrateatmaturityis$1.4560/pound,Whatisthevalueofherposition?Solution:Value(loss)=-Notionalprincipal*(Spot-Future)Value(loss)=-12*62500*($1.456-$1.4246)=-$23,550Valueofherposition=$2500*12-$23,550=$6,450(c)IfJenniferbuys3Marchpoundfutures,Andthespotrateatmaturityis$1.4560/pound,Whatisthevalueofherposition?Solve:Value(loss)=Notionalprincipal*(Spot-Future)Value(loss)=3*62500*($1.456-$1.4246)=$5887.5Valueofherposition=3*$2500+$5887.5=$13387.5(d)IfJennifersells12Junepoundfutures,Andthespotrateatmaturityis$1.3980/pound,Whatisthevalueofherposition?Solve:Value(loss)=-Notionalprincipal*(Spot-Futures)Value(loss)=-12*62500*($1.3980-$1.4164)=$13800Valueofherposition=12*$2500+$13800=$43800PROBLEM5KatyaBerezovskyisacurrencyspeculatorforMaderaCapitalofLosAngeles.HerlatestspeculativepositionistoprofitfromherexpectationthattheU.S.dollarwillrisesignificantlyaganisttheJapanseyen.Thecurrentspotrateis120yen/$.Shemustchoosebetweenthefollowing90-dayoptionsontheJapaneseyen:Spotrateattheendofthe90daysis140yen/$OptionStrikepricePremiumPutonyen125yen/$$0.00003/yenCallonyen125yen/$$0.00046/yen125yen/$=$0.008/yen140yen/$=$0.00714/yena.ShouldKatyabuyaputonyenoracallonyell?Imagination:BuyaputonyenProfit(loss)=Strikeprice-Spotprice-Premium=$0.008/yen-$0.00714/yen-$0.00003/yen=$0.00083/yenSotheprofitis$0.00083/yenBuyacallonyenProfit(loss)=Spotprice-Strikeprice-premium=$0.00714/yen-$0.008/yen-$0.00046/yen=-$0.00132/yenSothelossis$0.00089/yenThus,sheshouldbuyaputonyenb.Usingyouranswertopart(a),whatisKatya'sbreak-evenprice?Sinceshebuysaputonyen,Profit=Strikeprice-Spotprice-Premium=0Spotprice=Strikeprice-Premium=$0.008/yen-$0.00003/yen=$0.00797/yenc.Usingyouranswertopart(a),whatisKatya'sgrossprofitandnetprofit(includingthepremium)Grossprofit=Strikeprice-Spotprice=$0.008/yen-$0.00714/yen=$0.00086/yenNetprofit=Strikeprice-Spotprice-Premium=$0.008/yen-$0.00714/yen-$0.00003/yen=$0.00083/yen