国际财务课后习题答案chapter7.docx

国际财务课后习题答案chapter7.docx

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国际财务课后习题答案chapter7

CHAPTER7FUTURESANDOPTIONSONFOREIGNEXCHANGE

SUGGESTEDANSWERSANDSCX.UTIONSTOEND-OF-CIIAPTER

QUESTIONSANDPROBLEMS

QUESTIONS

1・Explainthebasicdificrcncesbetweentheoperationofaciurcncyibrwardmarketandafiituresmarket.

Answer:

Tlieforwardmark巩isanOTCmarketwheretheforwardcontractforpurchaseorsaleofforeigncurrencyistailor-madebetweentheclientanditsinternationalbank・Nomoneycliangesshandsmitiltliematurityd^:

eofthecontractwhendeliveiyandreceiptaretypicallymade.Afijtiuescontractisailexchaiige-tiadedinstnimentwithstandaidizedfeatuiesspecifyingcontiactsizeanddeliveiydate.Futiuescoohactsaiemaiked-to-iiiarketdailytoreflectchaiigesintliesettlementpiice.Deliveryisseldommadeinafuturesmarket.Ratheral^versingtradeismadetocloseoutalongorshortposition.

2.InorderforaderivativesmarkettofimetionmostcfFiocntly,twotypesofeconomicagetitsareneeded:

hedgersatidspeculdtors・Explain・

Answer:

Twotypesofniarketpaiticipantsarcncccssaiyforthe巴尸五cientoperatonofaderivativesmarket：

speculatorsandhedgers.Aspeculatorattemptstoprofitfiomaijiangeinthefuturesprice・Todothis,thespeculatorwi11takealongorsliortpositionitiafuturescontractdependinguponhisexpectationsofiuturepricemovernent.Ahedger,on-tlie-otlier-hand,desirestoavoidpricevariationbylockinginapurchasepriceofdiewidedyingassetthiouglialongpositioninaliituresccutractciasalespricethroughashortposition.hieffect,thehedgerpassesofftheiiskofpricevaiiationtothespeculatorwhoisbetterable,oralIea?

tmorewilling,tobearthisrisk.

3.Wliyaremostfiitiuespositionsclosedoutthroughareversingtraderatherthanheldtodeliveiy?

Answer:

Inforwardmarkets，approximately90percentofallcont「勺ctsthat前einitiallyestablishuclresultintheshortmakingdeliveiytothelongoftheassetunderlyingthecontract.Thisisnaturalbecausetlietermsofforwardcontractsaietailor—niadebetweenthclongandshort・Bycontrast,onlyaboutonepercentofciutciicvfiitiwcscotitrootsresultindelivery・Whilefuturescontractsarcusefulforspeculationandhedging,theirstandardizeddeliverydatesmakethemunlikelytocorrespondtotheactualfuturedateswiictiforogiicxdiangetransactionswilloccur.Tlius,theyaregenet'alclosedoutinarcszei^ingtrade.Infact,thecommissionthatbuyersmidsellerspaytotransacthithefuturesmaketisssinglcamountthatcovei^theround-triptiTaisactionsofinitiatingandclosingouttheposition・

4.HowcantheFXfirtutesmaiketbeusedforpHccdiscovery?

Answer:

TotheextenttliatFXforwardprioesareailunbiasedpredictoroffiiturespotexchangerates,tliemarketanticipateswhetheronecuiyenoywillappreciateordepreciateversusanother・BecauseFXEitiiresconti-actstradeinanexpirationcycle,cliflerentcontoactsexpireatdiHeientpeiiDclicdatesintotlieiiiture・Tliepatteiriofthepricesofthesecontactsprovidesinformationastotliemaikefsciinentbeliefaboutth巴rdativefiiturevalueofoneciuiencyversusanotheiatthescheduledexpirationdatesofthecontracts.Onewillgeniallyseeasteadilyappreciatingordepreciatingpattern;howevei;itmaybemixedattimes.TTius,thefiituresmarketisusefillforpricedscovery.i.e.,obtainingthemarket'sforecastofthespotexchangerateatdifferentfuture：

d“tES・

5・WhatistliemajordifFerenoeintheobligationofonewithalongpositioninafijturcs（orfonvaid）contractincomparisontoanoptionsconfraot?

Answer:

Afutures（orforwaid）contractisavehicleforbuyingorseiingastaledamountofforeignexchangeatastatedpriceperunitataspecifiedtimeintliefiitiue・Ifthelongholdsthecontracttothedeliverydate,hepaystlieeffectivecontractualfiitures（orfoiwat'd）price,regardless;ofwhetheritisanadvantageouspticeinoompaiiscntotliespotpriceatthedelkeiydate.Byoontiasf,ailoptionisacontiactgivingtheloristlieriglittobuycisellagivenquantityofanassetataspecifiedpriceatsometimeinthefiihne?

butnotenforcinganyobligationonhimifthespotpticeismorefavorabletliaiitheexerciseprize.Becauseth巴optionownei*doesnothavetoexercisetheoptionifitistohisdisadvaiit^e,theoptionhasaprice,orpremium,whereasnopriceisp已idatinceptiontoenterintoafutures（orforward）contract

6.Wliatisnieaitbytheterminologythatanoptionisin-,at-,oroiit・of—the-money?

Answer：

Acall（put.）optionwithSt>E（E>S^）isrefetredtoastradingin-thc-monejr・IfEtlieoptionishadingat-tlic-money.IfSf

7Listthearguments（variables）ofwhichanFXcallorputoj^tionmodelpriceisafunction・Howdoestiiccallandputpreininmchangewithrespecttoschangeintheai'guments?

Answer:

Botiicallmidputoptionsarefiinctionsofonlysixvariables：

£,E,r讣讣TandeWhenallelseremainstlicsame、thepriceofaEuicpcaiiFXcall（put）optionw11incressc:

1・tliclai'gei'（smaller）isS,

2.thesmall曰（largedisE、

3・tliesmaller（larger）isrn

4・tlieiaiger（smalleijisrt>

5.thelaiger（smaller）isrelativetorf,arid

6.thegjeaterisa

Whenandarenottooniuclidifferentinsize,aEuropeanFXcallandputwillincreaseinpricewhentheoptionterm-to-matiirityincreases・Howe、曰；when飞isverymuchlaigeithanaEuropeanFXcalIwillincreaseinprice,buttheputpremiumwilIdecrease,whe厂itheoptiontenn-to-mincreascs.Theoppositeistmewhenisvetymuchgreaterthanr$.For

American二XoptioilstlicanalysisisI傑scomplicatedSincealongertennAmericanoptioncanbeexercisedonanydatethatashortertennoptioncanbeexercisedor□somelaterdate,itfollowstliattlieallelseremainingthesarne.tlielongertennAmericenoptionwillsellatapriceatleastaslaigeastlieshortertennoption.

PROBLEMS

1.Assiunctoda>r，ssettlementpriceonaCMEEURfuturescontractisS1.314O/EUR.Yonhaveashortpositioninonecontract.Yourperformaiiccbondaccoimtciurcntlyhasabalanceof$L700.Thenexttlii'ccdays,scttleincntpricesetc$1.3126,$1.3133,aridS1.3049.Calculatethechangesintlicperfonnaiiccbondaccountfromd已ilymarking-to-marketandthebalanceoftlieperfotTnancebondaccoiuitafterthethirdday.

Solution:

$1,700+[〔$1.314O・S1.3126）+（$1.3126-Si.3133）

+（Sl.3133-SI.3049）]XEUR125,000=$2,837.50,

whereEUR125,000isthecontractualsizeofoneEURcontract.

2-Doproblem1againassumingyouhavealongpositioninthefuturescontiact・

Solution：

$1,700+[（$1.3126・$1.3140）+（$1・3133・S1・3126）十（$L3（Mg•$1.3133）]xEUR125,0OO=$562.50,

whereEUR125,OOOistliecontrachialsizeufoneEURcontract.

Withonly$562・50inyourpetfonnanccbondaccount,youwouldexperienceatnargiticallrequestingthatadditionalfijndsbeaddedtoyouipeiionnancebondaccounttobringtlicbalancebackuptotlieinitialpetdonnaiicebondlevel・

3・UsingthequotationsinExlubit7.3、calculatethefacevalueoftheopeninterestintheJune2005Swissfrancfiiturescontiact・

Solution：

2401contractsxSF125Q00二SF262,625JD00.

vvhei'eSF125,0C0istliecoutiactnalsizeofoneSFcontract・

4.UsingtliequotationsinExliibit7.3,notethattheJune2005MexicanpesoMurescontracthasapriceofSO.08845.YoubelievetliespotpiiceinJunewilbe$0.09500.WhMspeculativepositionwouldyouenterintotoattempttoprofitfrotnyourbeliefs?

Calculateyouranticipatedprofits,assumingyoutaP；eapositionintlweecontracts・Wliatisthesizeofyourprofit（loss）ifthefhturespriceisindeedanunbiasedpredictorofthefiitiirespotpriceandthispricematerializes?

Solution：

IfyouexpecttheMexicanpesotolisefromSO.08845toSO.09500,youwouldtakealongpositioninfiitiucssincethefiitiirespriceof$0.08845islessthanyourexpectedspotprice.

YouranticipatedprofitfromaIongpositionintiireccontractsis:

3x（$0.09500-

$0・08845）xMP500.0C'0=$9,825.00.whereMP500.00C1isthecontractualsizeofoneMPcontrast.

Ifthefiiturespriceissnunbiasedpredictoroftheexpectedspotprice,theexpectedspotpriceistliciutcacspriceof$0.08845///MP・Iftliisspotpricematerializes,youwillnothsrsreanyprofitsorlossesfromyourshortpositioninthreefuturescontracts:

3x（$O・08845-

$0.08845）XMP500.000=0.

5.Doproblem4againassumingyoubelievetheJiuie2005spotpricewillbe$0.08500.Solution:

IfyouexpecttlieMexicanpssotodepieciatefi-oni$0.08&15to$0.07500,youwoudtakeashortpositioninfiituressincethefuturespriceof$0.08845isgreatertliaiiyourexpectedspotprice・

Yciuanticipatedpiofitfromashortpositioninthreecontractsis：

3xi,$0・08845・$0.07500）xXlP500,000=$20,175.00・

IftliefiitiuespriceisanunbiasedpredictoroftheFuturespotpriceandthispricematerializes?

youwillnotprofitorlosefromyourlongfutwespzisition.

6.GeorgeJohnsonisconsideringapossibleax-motithSI00millionLJBClR-bascd,floating-rate

bankloantoHindaproject址termsshowninthetabicbelow.JohnsonfearsapossibletissintheLIBORratebyDecembermidwantstousetheDecemberEurodollarfiiturescontrasttohedgethisrisk・TliecontractexpiresDecember20<1999.hasaUS$1miIlioncontractsize,

andadiscountyieldof7.3peicent・

Jointsonwillignorethecashflowimplicationsofmarkingtomarket、initialmarginrequirements,andanytimingniisinatchbetweenexchange-ti'adedfiiturescontiactcashflowsandtlieinterestpaymentsdueinMarch.

LoanTerms

、c