FINS3616 International Business Finance Term 3 2021
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FINS3616 International Business Finance
Term 3 2021
Futures Contracts Practice Problems
The following information is used for the next TWO questions.
Assume that you have bought two Canadian dollar (CAD) futures contracts at the closing price on day t=0. Over the subsequent days, the futures price has evolved as shown in the following table. All values are the closing futures price for that day.
Day |
Futures Price |
t=0 |
EUR0.9399/CAD |
t=1 |
EUR0.9327/CAD |
t=2 |
EUR0.9370/CAD |
t=3 |
EUR0.9407/CAD |
t=4 |
EUR0.9435/CAD |
Each futures contract on the Canadian dollar has a size of CAD125,000, an initial margin of EUR2,000, and a maintenance margin of EUR1,400. In addition, assume that you never withdraw any excess funds from your margin account and always meet any required margin calls.
Question 1
What is the profit (+) or loss ( −) on your position over the period t=0 to t=4?
a. +EUR900.00
b. +EUR825.00
c. +EUR962.50
d. +EUR1,037.50
e. +EUR2,700.00
Question 2
What is the balance on your margin account at the end of day t=4?
a. EUR3,350.00
b. EUR4,900.00
c. EUR6,337.50
d. EUR3,100.00
e. EUR6,700.00
The following information is used for the next TWO questions.
Assume that you have sold two Australian dollar (AUD) futures contracts at the closing price on day t=0. Over the subsequent days, the futures price has evolved as shown in the following table. All values are the closing futures price for that day.
Day |
Futures Price |
t=0 |
CHF1.0742/AUD |
t=1 |
CHF1.0819/AUD |
t=2 |
CHF1.0780/AUD |
t=3 |
CHF1.0745/AUD |
t=4 |
CHF1.0722/AUD |
Each futures contract on the Australian dollar has a size of AUD125,000, an initial margin of CHF2,000, and a maintenance margin of CHF1,300. In addition, assume that you never withdraw any excess funds from your margin account and always meet any required margin calls.
Question 3
What is the profit (+) or loss ( −) on your position over the period t=0 to t=4?
Question 4
What is the balance on your margin account at the end of day t=4?
The following information is used for the next THREE questions:
B.D. Energy is a firm in the resource extraction industry that is headquartered in the United Kingdom. The firm has a AUD1,971,670 obligation to a supplier that must be paid exactly 55 days from today (at t=55). As Chief Financial Officer of B.D. Energy, you are evaluating several alternatives for hedging this Australian dollar obligation. Today’s spot rate is GBP1.1169/AUD.
One alternative under consideration is a forward contract priced at GBP1.0942/AUD, which your banker has tailored to perfectly match your underlying Australian
dollar exposure. Alternatively, futures contracts on the Australian dollar are available that matures in exactly 60 days (at t=60) and are currently priced at GBP1.0921/AUD. Each futures contract on the Australian dollar has a size of AUD62,500.
The below table shows the prices of the above futures contract and the spot rate in the period around the payment of your obligation. All values are the closing prices for that day.
Day |
Spot Price |
Futures Price |
t=55 |
GBP1.0963/AUD |
GBP1.0943/AUD |
t=56 |
GBP1.0973/AUD |
GBP1.0957/AUD |
t=57 |
GBP1.0957/AUD |
GBP1.0945/AUD |
t=58 |
GBP1.0939/AUD |
GBP1.0931/AUD |
t=59 |
GBP1.0945/AUD |
GBP1.0941/AUD |
t=60 |
GBP1.0950/AUD |
GBP1.0950/AUD |
Your policy when hedging with derivatives is to use the nearest whole number of contracts to the value of your exposure and to close out any position on the day of the underlying transaction.
Question 5
If you hedged with the forward contract, what is the realized British pound value of your obligation on its payment date?
a. GBP2,157,401.31
b. GBP2,161,541.82
c. GBP2,158,978.65
d. GBP2,157,598.48
e. GBP2,153,260.81
Question 6
If you hedged using futures, what is the realized British pound value of your obligation on its payment date?
a. GBP2,153,260.81
b. GBP2,155,741.82
c. GBP2,157,204.15
d. GBP2,157,598.48
e. GBP2,157,141.82
Question 7
If you hedged using futures, how much better (+) or worse ( −) off in British pound are you than if you had hedged with a forward contract?
a. +GBP259.49
b. +GBP197.17
c. −GBP197.17
d. +GBP4,140.51
e. +GBP1,659.49
The following information is used for the next THREE questions:
B.D. Energy is a firm in the resource extraction industry that is headquartered in the United States. The firm has a CHF891,590 receivable that will be paid by the customer exactly 55 days from today (at t=55). As Chief Financial Officer of B.D. Energy, you are evaluating several alternatives for hedging this Swiss franc receivable. Today’s spot rate is USD1.0743/CHF.
One alternative under consideration is a forward contract priced at USD1.0580/CHF, which your banker has tailored to perfectly match your underlying Swiss franc
exposure. Alternatively, futures contracts on the Swiss franc are available that matures in exactly 60 days (at t=60) and are currently priced at USD1.0565/CHF. Each futures contract on the Swiss franc has a size of CHF62,500.
The below table shows the prices of the above futures contract and the spot rate in the period around the payment of your receivable. All values are the closing prices for that day.
Day |
Spot Price |
Futures Price |
t=55 |
USD1.0379/CHF |
USD1.0365/CHF |
t=56 |
USD1.0368/CHF |
USD1.0356/CHF |
t=57 |
USD1.0373/CHF |
USD1.0364/CHF |
t=58 |
USD1.0353/CHF |
USD1.0347/CHF |
t=59 |
USD1.0366/CHF |
USD1.0363/CHF |
t=60 |
USD1.0348/CHF |
USD1.0348/CHF |
Your policy when hedging with derivatives is to use the nearest whole number of contracts to the value of your exposure and to close out any position on the day of the underlying transaction.
Question 8
If you hedged with the forward contract, what is the realized U.S dollar value of your receivable on its payment date?
Question 9
If you hedged using futures, what is the realized U.S dollar value of your receivable on its payment date?
Question 10
If you hedged using futures, how much better (+) or worse ( −) off in U.S dollar are you than if you had hedged with a forward contract?
2023-07-25
Futures Contracts Practice Problems