Question 10 The 3-month June 2023 dollar interest rate futures contract is currently priced at 95.50. The contract has a nominal value of 1 million dollars. (i) What is the party that sells the dollar interest rate futures contract agreeing to? (ii) If you think the 3-month spot interest rates on the dollar will be around 6% in June 2023 would you buy or sell the contract? Explain your reasoning. (iii) How much profit in dollars would you make if you take the action based on part (ii) and are proved right i.e., the 3-month interest rate on the dollar is 6% in June 2023. (iv) What 3-month dollar interest rate in June 2023 will give a break-even position for the seller of the contract? (v) What is the profit (+) or loss (-) for the buyer of the contract if the 3-month dollar interest rate in June 2023 is 2%?

Question 10 The 3-month June 2023 dollar interest rate futures contract is currently priced at 95.50. The contract has a nominal value of 1 million dollars. (i) What is the party that sells the dollar interest rate futures contract agreeing to? (ii) If you think the 3-month spot interest rates on the dollar will be around 6% in June 2023 would you buy or sell the contract? Explain your reasoning. (iii) How much profit in dollars would you make if you take the action based on part (ii) and are proved right i.e., the 3-month interest rate on the dollar is 6% in June 2023. (iv) What 3-month dollar interest rate in June 2023 will give a break-even position for the seller of the contract? (v) What is the profit (+) or loss (-) for the buyer of the contract if the 3-month dollar interest rate in June 2023 is 2%?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter7: International Arbitrage And Interest Rate Parity

Section: Chapter Questions

Problem 37QA

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The 3-month June 2023 dollar interest rate futures contract is currently priced at 95.50. The contract has a nominal value of 1 million dollars. (1) What is the party that sells the dollar interest rate futures contract agreeing to? (2) If you think the 3-month spot interest rates on the dollar will be around 6% in June 2023 would you buy or sell the contract? Explain your reasoning. (3) How much profit in dollars would you make if you take the action based on part (ii) and are proved right i.e., the 3-month interest rate on the dollar is 6% in June 2023. (Show your working in full) (4) What 3-month dollar interest rate in June 2023 will give a break-even position for the seller of the contract? (Show your working in full) (5) What is the profit (+) or loss (-) for the buyer of the contract if the 3-month dollar interest rate in June 2023 is 2%? (Show your working in full)
Question 7The 3-month March 2024 Euro interest rate futures contract on the Euro is currentlypriced at 96.00. The contract has a nominal value of 1 million Euros.(i) What are the two parties that buy/sell the Euro interest rate futures contract agreeingto? (ii) If you think the 3-month interest rates on the Euro will be around 5% in March wouldyou buy or sell the contract? (iii) How much profit in Euros would you make if you take the action based on part (ii)and are proved right i.e. the 3-month interest rate on the Euro is 5% in March. (iv) What 3-month Euro interest rate in March 2024 will give a break-even position for thebuyer of the contract? (v) What is the profit (+) or loss (-) for the seller of the contract if the 3 month Euro interestrate in March is 3%?
The 3-month March 2024 dollar interest rate futures contract on the dollar is currently priced at 96.00. The contract has a nominal value of 1 million dollars. a.)What 3-month dollar interest rate in March 2024 will give a break-even position for the buyer of the contract? b.) What is the profit or loss for the seller of the contract if the 3 month dollar interest rate in March is 3%?
Spaci Heading 3 Paragraph Futures are available on 3 month T bills with a contract size of $2 million. If you take a long position at $96.22 and later sell the contracts at $96.80, how much would the total net gain or loss be on this transaction? I
June 2021 Mexican peso futures contract has a price of $0.05197 per MXN. You believe the spot price in June will be $0.05831 per MXN. MXN500,000 is the contract size of one MXN contract. Required: What speculative position would you enter into to attempt to profit from your beliefs? Calculate your anticipated profits, assuming you take a position in three contracts. What is the size of your profit (loss) if the futures price is indeed an unbiased predictor of the future spot price and this price materializes?
Suppose we wish to borrow $10 million for 3 months, and that the quoted Eurodollar futures price is 94.80. If the interest rate on the loan is based on the 3-month LIBOR rate, what will we pay to repay the loan (that is, the total amount we need to repay including principal and interest based on LIBOR)? Question 16 options: $10, 160, 000.00 $10, 130,000.00 $10, 115,000.00 $10, 640,000.00 $10,520,000.00
Q1 A long forward contract on a commodity that was negotiated some time ago will expire in 1 months and has a delivery price of $70. The current spot price of the commodity is $59. The risk-free interest rate (with continuous compounding) is 0.09. What is the value of the long forward contract? Q2 A short forward contract on an investment asset that yields 0.08 and was negotiated some time ago will expire in 4 months and has a delivery price of $50. The current spot price of the commodity is $48. The risk-free interest rate (with continuous compounding) is 0.02. What is the value of the short forward contract? Q3 A long forward contract on a commodity that was negotiated some time ago will expire in 2 months and has a delivery price of $76. The current spot price of the commodity is $66. The risk-free interest rate (with continuous compounding) is 2.2%. What is the value of the long forward contract?
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Question 5 The March 2024 S&P 500 cash index is 930 while the S&P 500 futures index is 950 and the contract value of each index point is $100. You are convinced the futures market will rise 10% by expiry. You are only prepared to buy or sell one futures contract. (i) Will you buy or sell a contract in the futures market? (2 marks) (ii) What is your profit (+) in dollars if you are correct? (2 marks) (iii) What is your profit (+)/loss (-) if the futures price on expiry is 1200? (2 marks) (iv) What is your profit (+)/loss (-) if the futures price on expiry is 700? (2 marks) (v) Explain what is meant by “initial margin” on a futures contract. (2 marks)
QUESTION 5 A currency speculator wants to speculate on the future movements of the E. The speculator expects the € to appreciate in the near future and decides to concentrate on the nearby contract. The broker requires a 2% Initial Margin (IM) and the Maintenance Margin (MM) is 75% of IM. Following € Futures quotes are currently available from the Chicago Mercantile Exchange (CME). Euro (CME)-€125,000; $/€ Low Settle Change Open Interest 1.2175 1.2259 -0.0018 255,420 1.2189 1.2269 -0.0018 19,335 Compute the Initial Margin (IM) amount in the Margin Account. Open High June 1.2216 1.2276 Sept 1.2229 1.2288 ⒸA $3,087.96 OB. $3,057,25 OC. $3,064.75 D.$3,054.00
Question 3 The spot dollar-euro rate is $1.20/€1 and the forward rate is $1.15/€1. You expect the spot dollar-euro rate to be $1.05/€1 in one year's time. You have €1 million to speculate with using the forward exchange market. (iii) What is your profit in both euros and dollars if you are correct and the spot dollar- euro rate is $1.05/€1 in one year's time? (iv) What is your loss in both euros and dollars if you are wrong and the spot dollar-euro rate is $1.40/€1 in one year's time
Suppose you observe the following one-year interest rates, spot exchange rates and futures prices. Futures contracts are available on €10,000. How much risk-free arbitrage profit could you make on one contract at maturity from this mispricing? Exchange Rate Interest Rate APR So($/EL F380(S/E) $1.45 €1.00 is 4% $1.48 = €1.00 3% (Note: If you are unable to view the image shown above, you can download it: interestTable.PNG) O $159.22. O $153.10. $439.42. Onone of the options.