The current spot price of an asset for future transaction

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1. ‘Options and futures are zero-sum games.’’ What do you think is meant by this statement?

2. Explain why collateral requirements will increase in the OTC market as a result of new regulations introduced since the 2008 credit crisis.

3. The forward price of the Swiss franc for delivery in 45 days is quoted as 1.1000. The futures price for a contract that will be delivered in 45 days is 0.9000. Explain these two quotes. Which is more favorable for a trader wanting to sell Swiss francs?

4. Does a perfect hedge always succeed in locking in the current spot price of an asset for a future transaction? Explain your answer.

5. On July 1, an investor holds 50,000 shares of a certain stock. The market price is $30 per share. The investor is interested in hedging against movements in the market over the next month and decides to use the September Mini S&P 500 futures contract. The index futures price is 1,500 and one contract is for delivery of $50 times the index. The beta of the stock is 1.3. What strategy should the investor follow?

Reference no: EM131878503

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