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国际财务管理课后习题答案chapter7
CHAPTER7FUTURESANDOPTIONSONFOREIGNEXCHANGE
SUGGESTEDANSWERSANDSOLUTIONSTOEND-OF-CHAPTER
QUESTIONSANDPROBLEMS
QUESTIONS
1.Explainthebasicdifferencesbetweentheoperationofacurrencyforwardmarketandafuturesmarket.
Answer:
TheforwardmarketisanOTCmarketwheretheforwardcontractforpurchaseorsaleofforeigncurrencyistailor-madebetweentheclientanditsinternationalbank.Nomoneychangeshandsuntilthematuritydateofthecontractwhendeliveryandreceiptaretypicallymade.Afuturescontractisanexchange-tradedinstrumentwithstandardizedfeaturesspecifyingcontractsizeanddeliverydate.Futurescontractsaremarked-to-marketdailytoreflectchangesinthesettlementprice.Deliveryisseldommadeinafuturesmarket.Ratherareversingtradeismadetocloseoutalongorshortposition.
2.Inorderforaderivativesmarkettofunctionmostefficiently,twotypesofeconomicagentsareneeded:
hedgersandspeculators.Explain.
Answer:
Twotypesofmarketparticipantsarenecessaryfortheefficientoperationofaderivativesmarket:
speculatorsandhedgers.Aspeculatorattemptstoprofitfromachangeinthefuturesprice.Todothis,thespeculatorwilltakealongorshortpositioninafuturescontractdependinguponhisexpectationsoffuturepricemovement.Ahedger,on-the-other-hand,desirestoavoidpricevariationbylockinginapurchasepriceoftheunderlyingassetthroughalongpositioninafuturescontractorasalespricethroughashortposition.Ineffect,thehedgerpassesofftheriskofpricevariationtothespeculatorwhoisbetterable,oratleastmorewilling,tobearthisrisk.
3.Whyaremostfuturespositionsclosedoutthroughareversingtraderatherthanheldtodelivery?
Answer:
Inforwardmarkets,approximately90percentofallcontractsthatareinitiallyestablishedresultintheshortmakingdeliverytothelongoftheassetunderlyingthecontract.Thisisnaturalbecausethetermsofforwardcontractsaretailor-madebetweenthelongandshort.Bycontrast,onlyaboutonepercentofcurrencyfuturescontractsresultindelivery.Whilefuturescontractsareusefulforspeculationandhedging,theirstandardizeddeliverydatesmakethemunlikelytocorrespondtotheactualfuturedateswhenforeignexchangetransactionswilloccur.Thus,theyaregenerallyclosedoutinareversingtrade.Infact,thecommissionthatbuyersandsellerspaytotransactinthefuturesmarketisasingleamountthatcoverstheround-triptransactionsofinitiatingandclosingouttheposition.
4.HowcantheFXfuturesmarketbeusedforpricediscovery?
Answer:
TotheextentthatFXforwardpricesareanunbiasedpredictoroffuturespotexchangerates,themarketanticipateswhetheronecurrencywillappreciateordepreciateversusanother.BecauseFXfuturescontractstradeinanexpirationcycle,differentcontractsexpireatdifferentperiodicdatesintothefuture.Thepatternofthepricesofthesecontractsprovidesinformationastothemarket’scurrentbeliefabouttherelativefuturevalueofonecurrencyversusanotheratthescheduledexpirationdatesofthecontracts.Onewillgenerallyseeasteadilyappreciatingordepreciatingpattern;however,itmaybemixedattimes.Thus,thefuturesmarketisusefulforpricediscovery,i.e.,obtainingthemarket’sforecastofthespotexchangerateatdifferentfuturedates.
5.Whatisthemajordifferenceintheobligationofonewithalongpositioninafutures(orforward)contractincomparisontoanoptionscontract?
Answer:
Afutures(orforward)contractisavehicleforbuyingorsellingastatedamountofforeignexchangeatastatedpriceperunitataspecifiedtimeinthefuture.Ifthelongholdsthecontracttothedeliverydate,hepaystheeffectivecontractualfutures(orforward)price,regardlessofwhetheritisanadvantageouspriceincomparisontothespotpriceatthedeliverydate.Bycontrast,anoptionisacontractgivingthelongtherighttobuyorsellagivenquantityofanassetataspecifiedpriceatsometimeinthefuture,butnotenforcinganyobligationonhimifthespotpriceismorefavorablethantheexerciseprice.Becausetheoptionownerdoesnothavetoexercisetheoptionifitistohisdisadvantage,theoptionhasaprice,orpremium,whereasnopriceispaidatinceptiontoenterintoafutures(orforward)contract.
6.Whatismeantbytheterminologythatanoptionisin-,at-,orout-of-the-money?
Answer:
Acall(put)optionwithSt>E(E>St)isreferredtoastradingin-the-money.IfStEtheoptionistradingat-the-money.IfSt
7.Listthearguments(variables)ofwhichanFXcallorputoptionmodelpriceisafunction.Howdoesthecallandputpremiumchangewithrespecttoachangeinthearguments?
Answer:
Bothcallandputoptionsarefunctionsofonlysixvariables:
St,E,ri,r$,Tand.Whenallelseremainsthesame,thepriceofaEuropeanFXcall(put)optionwillincrease:
1.thelarger(smaller)isS,
2.thesmaller(larger)isE,
3.thesmaller(larger)isri,
4.thelarger(smaller)isr$,
5.thelarger(smaller)r$isrelativetori,and
6.thegreateris.
Whenr$andriarenottoomuchdifferentinsize,aEuropeanFXcallandputwillincreaseinpricewhentheoptionterm-to-maturityincreases.However,whenr$isverymuchlargerthanri,aEuropeanFXcallwillincreaseinprice,buttheputpremiumwilldecrease,whentheoptionterm-to-maturityincreases.Theoppositeistruewhenriisverymuchgreaterthanr$.ForAmericanFXoptionstheanalysisislesscomplicated.SincealongertermAmericanoptioncanbeexercisedonanydatethatashortertermoptioncanbeexercised,orasomelaterdate,itfollowsthattheallelseremainingthesame,thelongertermAmericanoptionwillsellatapriceatleastaslargeastheshortertermoption.
PROBLEMS
1.Assumetoday’ssettlementpriceonaCMEEURfuturescontractis$1.3140/EUR.Youhaveashortpositioninonecontract.Yourperformancebondaccountcurrentlyhasabalanceof$1,700.Thenextthreedays’settlementpricesare$1.3126,$1.3133,and$1.3049.Calculatethechangesintheperformancebondaccountfromdailymarking-to-marketandthebalanceoftheperformancebondaccountafterthethirdday.
Solution:
$1,700+[($1.3140-$1.3126)+($1.3126-$1.3133)
+($1.3133-$1.3049)]xEUR125,000=$2,837.50,
whereEUR125,000isthecontractualsizeofoneEURcontract.
2.Doproblem1againassumingyouhavealongpositioninthefuturescontract.
Solution:
$1,700+[($1.3126-$1.3140)+($1.3133-$1.3126)+($1.3049-$1.3133)]xEUR125,000=$562.50,
whereEUR125,000isthecontractualsizeofoneEURcontract.
Withonly$562.50inyourperformancebondaccount,youwouldexperienceamargincallrequestingthatadditionalfundsbeaddedtoyourperformancebondaccounttobringthebalancebackuptotheinitialperformancebondlevel.
3.UsingthequotationsinExhibit7.3,calculatethefacevalueoftheopeninterestintheJune2005Swissfrancfuturescontract.
Solution:
2,101contractsxSF125,000=SF262,625,000.
whereSF125,000isthecontractualsizeofoneSFcontract.
4.UsingthequotationsinExhibit7.3,notethattheJune2005Mexicanpesofuturescontracthasapriceof$0.08845.YoubelievethespotpriceinJunewillbe$0.09500.Whatspeculativepositionwouldyouenterintotoattempttoprofitfromyourbeliefs?
Calculateyouranticipatedprofits,assumingyoutakeapositioninthreecontracts.Whatisthesizeofyourprofit(loss)ifthefuturespriceisindeedanunbiasedpredictorofthefuturespotpriceandthispricematerializes?
Solution:
IfyouexpecttheMexicanpesotorisefrom$0.08845to$0.09500,youwouldtakealongpositioninfuturessincethefuturespriceof$0.08845islessthanyourexpectedspotprice.
Youranticipatedprofitfromalongpositioninthreecontractsis:
3x($0.09500-$0.08845)xMP500,000=$9,825.00,whereMP500,000isthecontractualsizeofoneMPcontract.
Ifthefuturespriceisanunbiasedpredictoroftheexpectedspotprice,theexpectedspotpriceisthefuturespriceof$0.08845/MP.Ifthisspotpricematerializes,youwillnothaveanyprofitsorlossesfromyourshortpositioninthreefuturescontracts:
3x($0.08845-$0.08845)xMP500,000=0.
5.Doproblem4againassumingyoubelievetheJune2005spotpricewillbe$0.08500.
Solution:
IfyouexpecttheMexicanpesotodepreciatefrom$0.08845to$0.07500,youwouldtakeashortpositioninfuturessincethefuturespriceof$0.08845isgreaterthanyourexpectedspotprice.
Youranticipatedprofitfromashortpositioninthreecontractsis:
3x($0.08845-$0.07500)xMP500,000=$20,175.00.
Ifthefuturespriceisanunbiasedpredictorofthefuturespotpriceandthispricematerializes,youwillnotprofitorlosefromyourlongfuturesposition.
6.GeorgeJohnsonisconsideringapossiblesix-month$100millionLIBOR-based,floating-ratebankloantofundaprojectattermsshowninthetablebelow.JohnsonfearsapossibleriseintheLIBORratebyDecemberandwantstousetheDecemberEurodollarfuturescontracttohedgethisrisk.ThecontractexpiresDecember20,1999,hasaUS$1millioncontractsize,andadiscountyieldof7.3percent.
Johnsonwillignorethecashflowimplicationsofmarkingtomarket,initialmarginrequirements,andanytimingmismatchbetweenexchange-tradedfuturescontractcashflowsandtheinterestpaymentsdueinMarch.
LoanTerms
September20,1999December20,1999March20,2000
Borrow$100millionatPayinterestforfirstthreePaybackprincipal
September20LIBOR+200monthsplusinter