Essay About June Futures Contract And N2.29Futures Prices

Finance 411
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Homework 1SolutionsN2.28There is a margin call if the margin account falls by $3,000 – $2,000 = $1,000.  This will happen if the new price increases to:(X – $4.50) × 5,000 = $1,000X – $4.50= $0.2X = $4.70Therefore, the price has to increase by 20 cents.Similarly, to withdraw $1,500 from the account the price has to fall by 30 cents to $4.20.N2.29Futures prices:Jun                80Dec                86To make money, you could long one June futures contract and short one December contract.  In June, Jun futures contract matures and you take delivery of crude oil. To pay for it you can borrow $80 per bbl. at 5% for 6 months. There are no storage costs for keeping oil for 6 months. In December, Dec contract matures and you sell crude oil for $86 per bbl. plus you need to pay back the loan with interest.  Interest is equal to:$80 × 0.05 × 6/12 = $2 per bbl.So, the gain is $86 – $80 – $2 = $4 per bbl.Part 2Futures rates on JPY:01/21                0.00959301/22                0.00958101/23                0.00969501/24                0.009777Spot rate:01/24                0.0097632Contract size: 12,500,000 yenLong March 2014 7 contracts (90,000,000/12,500,000 = 7.2 –round down).01/21        long 7 futures contracts at 0.009593 (cost is zero)01/22        pay                (0.009581 – 0.009593)×12,500,000×7 = -$1,05001/23        receive                (0.009695 – 0.009581)×12,500,000×7 = $9,97501/24        receive                (0.009777 – 0.009695)×12,500,000×7 = $7,17501/24        short 7 futures contracts at 0.009777 (cost is zero)Gain from futures:        $16,100Final payment:        90,000,000×0.0097632 = $878,688Total payment:        $862,588If not hedged:                $878,688Benefitted from hedging.Futures rates on GBP:01/21                1.647201/22                1.657001/23                1.662401/24                1.6500Spot rate:01/24                1.6491Contract size: 62,500 poundsShortMarch 2014, 14 contracts (900,000/62,500 = 14.4 –round down).01/21        short 14 futures contracts at 1.6472 (cost is zero)01/22        pay                (1.6472 – 1.6570)×62,500×14 = -$8,57501/23        pay                (1.6570 – 1.6624)×62,500×14 = -$4,725