FINS5516 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
FINS5516 2020 T3 1 Peter Kjeld Andersen
FINS5516 Futures Contracts Practice Problems
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?
FINS5516 2020 T3 2 Peter Kjeld Andersen
FINS5516 Futures Contracts Practice Problems
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
FINS5516 2020 T3 3 Peter Kjeld Andersen
FINS5516 Futures Contracts Practice Problems
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
FINS5516 2020 T3 4 Peter Kjeld Andersen
FINS5516 Futures Contracts Practice Problems
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.