国际财务管理课后习题答案chapter 7.docx

1、国际财务管理课后习题答案chapter 7CHAPTER 7 FUTURES AND OPTIONS ON FOREIGN EXCHANGESUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTERQUESTIONS AND PROBLEMSQUESTIONS1. Explain the basic differences between the operation of a currency forward market and a futures market.Answer: The forward market is an OTC market w

2、here the forward contract for purchase or sale of foreign currency is tailor-made between the client and its international bank. No money changes hands until the maturity date of the contract when delivery and receipt are typically made. A futures contract is an exchange-traded instrument with stand

3、ardized features specifying contract size and delivery date. Futures contracts are marked-to-market daily to reflect changes in the settlement price. Delivery is seldom made in a futures market. Rather a reversing trade is made to close out a long or short position.2. In order for a derivatives mark

4、et to function most efficiently, two types of economic agents are needed: hedgers and speculators. Explain.Answer: Two types of market participants are necessary for the efficient operation of a derivatives market: speculators and hedgers. A speculator attempts to profit from a change in the futures

5、 price. To do this, the speculator will take a long or short position in a futures contract depending upon his expectations of future price movement. A hedger, on-the-other-hand, desires to avoid price variation by locking in a purchase price of the underlying asset through a long position in a futu

6、res contract or a sales price through a short position. In effect, the hedger passes off the risk of price variation to the speculator who is better able, or at least more willing, to bear this risk.3. Why are most futures positions closed out through a reversing trade rather than held to delivery?A

7、nswer: In forward markets, approximately 90 percent of all contracts that are initially established result in the short making delivery to the long of the asset underlying the contract. This is natural because the terms of forward contracts are tailor-made between the long and short. By contrast, on

8、ly about one percent of currency futures contracts result in delivery. While futures contracts are useful for speculation and hedging, their standardized delivery dates make them unlikely to correspond to the actual future dates when foreign exchange transactions will occur. Thus, they are generally

9、 closed out in a reversing trade. In fact, the commission that buyers and sellers pay to transact in the futures market is a single amount that covers the round-trip transactions of initiating and closing out the position.4. How can the FX futures market be used for price discovery?Answer: To the ex

10、tent that FX forward prices are an unbiased predictor of future spot exchange rates, the market anticipates whether one currency will appreciate or depreciate versus another. Because FX futures contracts trade in an expiration cycle, different contracts expire at different periodic dates into the fu

11、ture. The pattern of the prices of these contracts provides information as to the markets current belief about the relative future value of one currency versus another at the scheduled expiration dates of the contracts. One will generally see a steadily appreciating or depreciating pattern; however,

12、 it may be mixed at times. Thus, the futures market is useful for price discovery, i.e., obtaining the markets forecast of the spot exchange rate at different future dates.5. What is the major difference in the obligation of one with a long position in a futures (or forward) contract in comparison t

13、o an options contract?Answer: A futures (or forward) contract is a vehicle for buying or selling a stated amount of foreign exchange at a stated price per unit at a specified time in the future. If the long holds the contract to the delivery date, he pays the effective contractual futures (or forwar

14、d) price, regardless of whether it is an advantageous price in comparison to the spot price at the delivery date. By contrast, an option is a contract giving the long the right to buy or sell a given quantity of an asset at a specified price at some time in the future, but not enforcing any obligati

15、on on him if the spot price is more favorable than the exercise price. Because the option owner does not have to exercise the option if it is to his disadvantage, the option has a price, or premium, whereas no price is paid at inception to enter into a futures (or forward) contract.6. What is meant

16、by the terminology that an option is in-, at-, or out-of-the-money?Answer: A call (put) option with St E (E St) is referred to as trading in-the-money. If St E the option is trading at-the-money. If St E (E St) the call (put) option is trading out-of-the-money. 7. List the arguments (variables) of w

17、hich an FX call or put option model price is a function. How does the call and put premium change with respect to a change in the arguments?Answer: Both call and put options are functions of only six variables: St, E, ri, r$, T and . When all else remains the same, the price of a European FX call (p

18、ut) option will increase:1. the larger (smaller) is S,2. the smaller (larger) is E,3. the smaller (larger) is ri,4. the larger (smaller) is r$,5. the larger (smaller) r$ is relative to ri, and6. the greater is .When r$ and ri are not too much different in size, a European FX call and put will increa

19、se in price when the option term-to-maturity increases. However, when r$ is very much larger than ri, a European FX call will increase in price, but the put premium will decrease, when the option term-to-maturity increases. The opposite is true when ri is very much greater than r$. For American FX o

20、ptions the analysis is less complicated. Since a longer term American option can be exercised on any date that a shorter term option can be exercised, or a some later date, it follows that the all else remaining the same, the longer term American option will sell at a price at least as large as the

21、shorter term option. PROBLEMS1. Assume todays settlement price on a CME EUR futures contract is $1.3140/EUR. You have a short position in one contract. Your performance bond account currently has a balance of $1,700. The next three days settlement prices are $1.3126, $1.3133, and $1.3049. Calculate

22、the changes in the performance bond account from daily marking-to-market and the balance of the performance bond account after the third day.Solution: $1,700 + ($1.3140 - $1.3126) + ($1.3126 - $1.3133)+ ($1.3133 - $1.3049) x EUR125,000 = $2,837.50,where EUR125,000 is the contractual size of one EUR

23、contract.2. Do problem 1 again assuming you have a long position in the futures contract.Solution: $1,700 + ($1.3126 - $1.3140) + ($1.3133 - $1.3126) + ($1.3049 - $1.3133) x EUR125,000 = $562.50,where EUR125,000 is the contractual size of one EUR contract. With only $562.50 in your performance bond

24、account, you would experience a margin call requesting that additional funds be added to your performance bond account to bring the balance back up to the initial performance bond level.3. Using the quotations in Exhibit 7.3, calculate the face value of the open interest in the June 2005 Swiss franc

25、 futures contract.Solution: 2,101 contracts x SF125,000 = SF262,625,000.where SF125,000 is the contractual size of one SF contract.4. Using the quotations in Exhibit 7.3, note that the June 2005 Mexican peso futures contract has a price of $0.08845. You believe the spot price in June will be $0.0950

26、0. 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

27、 price materializes?Solution: If you expect the Mexican peso to rise from $0.08845 to $0.09500, you would take a long position in futures since the futures price of $0.08845 is less than your expected spot price.Your anticipated profit from a long position in three contracts is: 3 x ($0.09500 - $0.0

28、8845) x MP500,000 = $9,825.00, where MP500,000 is the contractual size of one MP contract.If the futures price is an unbiased predictor of the expected spot price, the expected spot price is the futures price of $0.08845/MP. If this spot price materializes, you will not have any profits or losses fr

29、om your short position in three futures contracts: 3 x ($0.08845 - $0.08845) x MP500,000 = 0.5. Do problem 4 again assuming you believe the June 2005 spot price will be $0.08500.Solution: If you expect the Mexican peso to depreciate from $0.08845 to $0.07500, you would take a short position in futur

30、es since the futures price of $0.08845 is greater than your expected spot price.Your anticipated profit from a short position in three contracts is: 3 x ($0.08845 - $0.07500) x MP500,000 = $20,175.00.If the futures price is an unbiased predictor of the future spot price and this price materializes,

31、you will not profit or lose from your long futures position.6. George Johnson is considering a possible six-month $100 million LIBOR-based, floating-rate bank loan to fund a project at terms shown in the table below. Johnson fears a possible rise in the LIBOR rate by December and wants to use the De

32、cember Eurodollar futures contract to hedge this risk. The contract expires December 20, 1999, has a US$ 1 million contract size, and a discount yield of 7.3 percent.Johnson will ignore the cash flow implications of marking to market, initial margin requirements, and any timing mismatch between exchange-traded futures contract cash flows and the interest payments due in March.Loan Terms September 20, 1999 December 20, 1999 March 20, 2000 Borrow $100 million at Pay interest for first three Pay back principal September 20 LIBOR + 200 months plus inter