Name(s):
Section:
Homework 3
Read the questions carefully and clearly write all your steps.
Hard copies of the solutions must be dropped in the TA’s box by 6PM on April 4, 2018. No later
submission will be accepted.
You may work in groups of four or less, and only one solution set will be turned in by each group. The
grade on the problems turned by the group will be given to each member of the group.
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
Yesterday, you entered into a futures contract to buy €62,500 at $1.50 per €. Suppose
the futures price closes today at $1.46. How much have you made/lost?
1)
A)
You have lost $2,500.00.
B)
You have neither made nor lost money, yet.
C)
You have made $2,500.00.
D)
Depends on your margin balance.
2)
Today‘s settlement price on a Chicago Mercantile Exchange (CME) yen futures contract
is $0.8011/¥100. Your margin account currently has a balance of $2,000. The next three
days’ settlement prices are $0.8057/¥100, $0.7996/¥100, and $0.7985/¥100. (The
contractual size of one CME yen contract is ¥12,500,000). If you have a short position in
one futures contract, the changes in the margin account from daily marking-to-market
will result in the balance of the margin account after the third day to be
2)
A)
$2,000.
B)
$2,325.
C)
$3,425.
D)
$1,425.
3)
Use the binomial option pricing model to find the value of a call option on £10,000 with a
strike price of €12,500. The current exchange rate is €1.50/£1.00 and in the next period
the exchange rate can increase to €2.40/£ or decrease to €0.9375/€1.00 (i.e.
u
= 1.6 and
d
= 1/
u
= 0.625). The current interest rates are
i
€
= 3% and are
i
£
= 4%.
Choose the
answer closest to yours
.
3)
A)
€3,373
B)
€3,275
C)
€3,243
D)
€2,500
1
4)
Suppose that Boeing Corporation exported a Boeing 747 to Lufthansa and billed €10 million
payable in one year. The money market interest rates and foreign exchange rates are given as
follows:
The U.S. one-year interest rate:
6.10
% per annum
The euro zone one-year interest rate:
9.00
% per annum
The spot exchange rate:
$
1.50
/€
The one-year forward exchange rate
$
1.46
/€
Assume that Boeing sells a currency forward contract of €10 million for delivery in one year, in
exchange for a predetermined amount of U.S. dollars. Which of the following is/are true? On the
maturity date of the contract Boeing will
(i) have to deliver €10 million to the bank (the counter party of the forward contract).
(ii) take delivery of $14.6 million
(iii) have a zero net euro exposure
(iv) have a profit, or a loss,
depending on the future changes in the exchange rate, from
this British sale.
4)
A)
(ii) and (iv)
B)
(i), (ii), and (iii)
C)
(ii), (iii), and (iv)
D)
(i) and (iv)
5)
Suppose that Boeing Corporation exported a Boeing 747 to Lufthansa and billed €10 million
5)
A)
B)
C)
D)
