Reference no: EM132530973

Exercise 1 You enter into a short futures contract to sell July silver for $ 5.20 per ounce on the New York Commodity Exchange. The size of the contract is 5,000 ounces. The initial margin is 4,000$ and the maintenance margin is 3,000$. What change in the futures price will lead to a margin call ?

Exercise 2 The sd of monthly changes in the spot price of live cattle is 1.2 cents per pound. The sd of monthly changes in the futures price of live cattle for the closest contract is 1.4. The correlation between the futures price change and the spot price change is 0.7. It is now Oct. 15. A beef producer is committed to purchasing 200,000 pounds of live cattle on Nov. 15. The producer wants to use the December live cattle futures contracts to hedge the risks. Each contract is for the delivery of 40,000 pounds of cattle. What strategy should the beef producer follow?

Exercise 3 A company has a € 40 million portfolio with a beta of 1.2. The Eurostoxx50 is currently trading at 3442 index points and the multiplier is 50 times the index. The risk free interest rate is equal to 2% and the dividend yield is 2,41%. a) How can the company use futures contracts on the S&P 500 to completely hedge its risk over the next 6 months ? b) What position should it take to reduce the beta of the portfolio to 0.6 ? c) Suppose that the fund manager now expect a rise in the market and he wants to use futures contract to increase the beta to 2.0. What should the fund manager do?

Exercise 4 A company has to buy 100.000 barrels of oil on June 4th. To hedge the position the company decides to use futures on the brent expiring on june 21th. The initial futures price is 64.93. On june 4th the company buy the oil and close the futures position. Suppose that when the position is closed the futures price is equal to 63.98 and the spot price is equal to 64.52. Calculate 1) The price at which the company buy the oil on June 4th 2) The basis Please indicate if the basis played a positive or negative role

Exercise 5 A dental firm has estimated its demand for silver to be 10,000 troy ounces during December and January. The firm is concerned that prices will rise in the interim and would like to lock in today's price of $5.60 without purchasing the silver today. On June 15th, the CBOT's December futures contract trades at $5.90. Since each contract controls 1000 troy ounces, the firm locks into a price of $5.90 by buying 10 contracts. In late November, the spot price has increased to $8.00 and the futures contract is priced at $8.45. At that time the firm sells the futures contract and purchases the silver at spot prices. Calculate the cost of the silver for the company in late November under the unhedged and under the hedged position.

Exercise 6 An investor sells 10 futures contracts on day 1 for $500 each. The initial margin is 40% and the maintenance margin is 30%. If the pattern of prices is as given in the table below work out the margin account of the investor for each day until the position is closed out on day 7.

Day Price 

1 500
2 480
3 490
4 530
5 580
6 520
7 490