Question

2. The three-month futures price for the British pound is $1.3160/£. You expect the spot price three months from today to be $1.3680/£. The British pound contract size is £62,500. a. If you decide to buy 68 British pound futures contracts, how much money do you need today as your initial investment other than the margin you need to post? b. If you have available $1.4 million to speculate in the futures market as a buyer, how many contracts can you buy assuming no margin requirement? c. How much profit would you make if you buy 68 contracts and the spot price of the pound at futures expiration ended up at $1.3260/£? d. If you were an MNC and you buy parts and raw materials from a supplier in London at £11.25 million that are due to be paid by you in three months, would you buy or sell the pound futures if you decide to hedge your position? e. How many contracts would you buy or sell? What would be the dollar value of your imports when your pound payment is due? f. How much would be your profit/loss from the foreign exchange transaction if the spot rate three months from today ended up at $1.3240/£?

Answer 1

by 202/2020 || 3mth futwies spot – $1-3160/ 3 min futures 'E(S) >>$1.3680_/ Lot Size L a k 62500 _|_685+ > Money required 9_68*62500, *1.316.0 - today 285,59 3,000 b) | Amount availablo $1,400,000 &feculatión_envoles – 1) Buying future-7 $14000, 00D - 1.3160*62500) e 1 70 21 2 70Ft i) On matwity E(s) .= $1:368014_ Contracts -) 170 * 62500 -#1062500 *1.3680 2314.53500 1.' dubitrage profit $1453500 – 1400 our 2.853500 O fuzicale 1 Belling 1170

c. 68E+ @$1. 31601* en maturita efet frie @ $1-3260 Brofit (1:3260 -1.3160) + 68* *.62500 á 2 t26 & $42500

{ $11:25. million. - payable, 3 months lince, the investon is also afraid of $ falling out. tersing futures given are £ futwus investor ia hudge forelgn currency risk by buying fulares contract. o g taying 21 Therefour no.of futiveys 22411250,000 conbladt (Ft) + 62500 280 Ft Amount payable spot =2 11,250,000 * 1.3160 =) $14,805000 On Matiwity &pot $1324014 " 4) buying t spot 771,3240*11,250,000 oyon $.14,89 5000 27. profiton futures contrast -2_180.** 62506#(13240 –13164 - 7390000 i's Net Cost of Buying =2. $4,89697 a $14,895,000 - $90000 $14805007 :Profit 2 $ 1480 5000 -$1486 500 =1$0 er ft can be sun.. fby using futures foreign currency espoowu siok can be hegekdo