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What are the daily cash flows from marketing to market

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(a) On February 8, you sold five futures contracts for 5000 EUR each at a futures rate of GBP/EUR 0.91. The subsequent settelment prices are shown in the table below:

February 9 10 11 12 15 16 17 18

Futures Rate 0.92 0.93 0.95 0.98 0.97 0.96 0.97 0.99

i. What are the daily cash flows from marketing to market?

ii. What is the total cash flow from marketing to market (ignoring discounting)?

(b) A German exporter is expected to pay GBP 1,500,000 on April 15th, three months from now. In order to hedge this transaction, she wishes to purchase an option contract.

i. What would be the cost for an April maturity contract for hedging this transaction? Assume that the strike price is EUR/GBP 0.72, and the option premia (per 100 GBP) are EUR 1.7 for calls and EUR 2.4 for puts.

ii. What would be the maximum cost (in euros) for this exporter in April? Assume the EUR effective rate of return is 5%

Reference no: EM132780530

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