All Related Questions of Futures Contract

Q: LEW Jewelry Co. uses gold in the manufacture of its products

LEW Jewelry Co. uses gold in the manufacture of its products. LEW anticipates that it will need to purchase 500 ounces of gold in October 2014, for jewelry that will be shipped for the holiday shoppin...

Q: Hart Golf Co. uses titanium in the production of its specialty

Hart Golf Co. uses titanium in the production of its specialty drivers. Hart anticipates that it will need to purchase 200 ounces of titanium in November 2014, for clubs that will be shipped in the sp...

Q: Refer to Table 25.2 in the text to answer this

Refer to Table 25.2 in the text to answer this question. Suppose you purchase a March 2012 cocoa futures contract on November 22, 2011, at the last price of the day. What will your profit or loss be i...

Q: If a U.S. company exports its goods to Japan

If a U.S. company exports its goods to Japan, how would it use a futures contract on Japanese yen to hedge its exchange rate risk? Would it buy or sell yen futures? Does the way the exchange rate is q...

Q: What is the implied nominal interest rate on a Treasury bond ($

What is the implied nominal interest rate on a Treasury bond ($100,000) futures contract that settled at 100’16.0 (or 100-160)? If interest rates increased by 1%, what would be the contract’s new valu...

Q: The treasurer for Thornton Pipe and Steel Company wishes to use financial

The treasurer for Thornton Pipe and Steel Company wishes to use financial futures to hedge her interest rate exposure. She will sell five Treasury futures contracts at $105,000 per contract. It is Jul...

Q: LEW Jewelry Co. uses gold in the manufacture of its products

LEW Jewelry Co. uses gold in the manufacture of its products. LEW anticipates that it will need to purchase 500 ounces of gold in October 2012, for jewelry that will be shipped for the holiday shoppin...

Q: Hart Golf Co. uses titanium in the production of its specialty

Hart Golf Co. uses titanium in the production of its specialty drivers. Hart anticipates that it will need to purchase 200 ounces of titanium in October 2012, for clubs that will be shipped in the hol...

Q: Suppose the September Eurodollar futures contract has a price of 96.

Suppose the September Eurodollar futures contract has a price of 96.4. You plan to borrow $50m for 3 months in September at LIBOR, and you intend to use the Eurodollar contract to hedge your borrowing...

Q: Suppose you are selecting a futures contract with which to hedge a

Suppose you are selecting a futures contract with which to hedge a portfolio. You have a choice of six contracts, each of which has the same variability, but with correlations of −0.95, −0.75, −0.50,...

Q: Consider the same facts as the previous problem, only now consider

Consider the same facts as the previous problem, only now consider hedging with the 3-month Eurodollar futures. Suppose the Eurodollar futures contract that matures 60 days from today has a price on d...

Q: An option has a gold futures contract as the underlying asset.

An option has a gold futures contract as the underlying asset. The current 1-year gold futures price is $300/oz, the strike price is $290, the risk-free rate is 6%, volatility is 10%, and time to expi...

Q: Suppose XYZ is a non-dividend-paying stock. Suppose

Suppose XYZ is a non-dividend-paying stock. Suppose S = $100, σ = 40%, δ = 0, and r = 0.06. a. What is the price of a 105-strike call option with 1 year to expiration? b. What is the 1-year forward pr...

Q: Assume today’s settlement price on a CME EUR futures contract is $

Assume today’s settlement price on a CME EUR futures contract is $1.3140/EUR.You have a short position in one contract. Your performance bond account currentlyhas a balance of $1,700. The next three d...

Q: George Johnson is considering a possible six-month $100 million

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. Johnsonfears a possible rise in the LIBOR rate...

Q: Using the quotations in Exhibit 7.3, note that the

Using the quotations in Exhibit 7.3, note that the September 2013 Mexican pesofutures contract has a price of $0.07713 per MXN. You believe the spot pricein September will be $0.08365 per MXN. What sp...

Q: Do problem 4 again assuming you believe the September 2013 spot price

Do problem 4 again assuming you believe the September 2013 spot price will be$0.07061 per MXN. Data from Problem 4: Using the quotations in Exhibit 7.3, note that the September 2013 Mexican peso futur...

Q: Karla Ferris, a fixed income manager at Mangus Capital Management,

Karla Ferris, a fixed income manager at Mangus Capital Management, expects thecurrent positively sloped U.S. Treasury yield curve to shift parallel upward.Ferris owns two $1,000,000 corporate bonds ma...

Q: Do problem 1 again assuming you have a long position in the

Do problem 1 again assuming you have a long position in the futures contract. Data from Problem 1: Assume today’s settlement price on a CME EUR futures contract is $1.3140/EUR.You have a short positi...

Q: Using the quotations in Exhibit 7.3, calculate the face

Using the quotations in Exhibit 7.3, calculate the face value of the open interest in the September 2013 Swiss franc futures contract. Exhibit 7.3:

Q: True or false? a. Hedging transactions in an active

True or false? a. Hedging transactions in an active futures market have zero or slightly negative NPVs. b. When you buy a futures contract, you pay now for delivery at a future date. c. The holder of...

Q: A gold-mining firm is concerned about short-term volatility

A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $1,300 an ounce, but the price is extremely volatile and could fall as low as $1,220 or rise as hi...

Q: NGW, a consumer gas provider, estimates a rather cold winter

NGW, a consumer gas provider, estimates a rather cold winter. As a result it decides to enter into a futures contract on the NYMEX for natural gas on November 2, 2016. The trading unit is 10,000 milli...

Q: A Treasury bond futures contract has a settlement price of 89’08.

A Treasury bond futures contract has a settlement price of 89’08. What is the implied annual yield?

Q: What is the implied interest rate on a Treasury bond ($100

What is the implied interest rate on a Treasury bond ($100,000) futures contract that settled at 100’16? If interest rates increased by 1%, what would be the contract’s new value?

Q: Springer County Bank has assets totaling $180 million with a duration

Springer County Bank has assets totaling $180 million with a duration of five years, and liabilities totaling $160 million with a duration of two years. Bank management expects interest rates to fall...

Q: If at the expiration date, the deliverable Treasury bond is selling

If at the expiration date, the deliverable Treasury bond is selling for 101 but the Treasury bond futures contract is selling for 102, what will happen to the futures price? Explain your answer.

Q: Assume the bank in the previous question partially hedges the mortgage by

Assume the bank in the previous question partially hedges the mortgage by selling three 10-year T-note futures contracts at a price of 100 20/32. Each contract is for $1,000,000. After two months, the...

Q: If you buy a put option on a $100,000

If you buy a put option on a $100,000 Treasury bond futures contract with an exercise price of 95 and the price of the Treasury bond is 120 at expiration, is the contract in the money, out of the mone...

Q: Suppose that you buy a call option on a $100,

Suppose that you buy a call option on a $100,000 Treasury bond futures contract with an exercise price of 110 for a premium of $1,500. If on expiration the futures contract has a price of 111, what is...

Q: On September 12, the cheapest-to-deliver bond on

On September 12, the cheapest-to-deliver bond on the December Treasury bond futures contract is the 9s of November YY 18. The bond pays interest semiannually on May 15 and November 15. Its price is 12...

Q: The crude oil futures contract on the New York Mercantile Exchange covers

The crude oil futures contract on the New York Mercantile Exchange covers 1,000 barrels of crude oil. The contract is quoted in dollars and cents per barrel (e.g., $27.42), and the minimum price chang...

Q: A corporate cash manager who often invests her firm’s excess cash in

A corporate cash manager who often invests her firm’s excess cash in the Eurodollar market is considering the possibility of investing $20 million for 180 days directly in a Eurodollar CD at 6.15 perc...

Q: Suppose you buy a stock index futures contract at the opening price

Suppose you buy a stock index futures contract at the opening price of 452.25 on July 1. The multiplier on the contract is 500, so the price is $500 452 25 $226,125 You hold the position until selling...

Q: On September 26 of a particular year, the March Treasury bond

On September 26 of a particular year, the March Treasury bond futures contract settlement price as 94–22. Compare the following two bonds and determine which is the cheaper bond to deliver. Assume tha...

Q: Assume that on March 16, the cheapest bond to deliver on

Assume that on March 16, the cheapest bond to deliver on the June Treasury bond futures contract is the 14s, callable in about 19 years and maturing in about 24 years. Coupons are paid on November 15...

Q: On a particular day, the S&P 500 futures settlement

On a particular day, the S&P 500 futures settlement price was 899.30. You buy one contract at the settlement price at around the close of the market. The next day the contract opens at 899.70, and the...

Q: On September 12, a stock index futures contract was at 423

On September 12, a stock index futures contract was at 423.70. The December 400 call was at 26.25, and the put was at 3.25. The index was at 420.55. The futures and options expire on December 21. The...

Q: On July 5, a stock index futures contract was at 394

On July 5, a stock index futures contract was at 394.85. The index was at 392.54, the risk-free rate was 2.83 percent, the dividend yield was 2.08 percent, and the contract expired on September 20. De...

Q: Suppose there is a futures contract on a portfolio of stocks that

Suppose there is a futures contract on a portfolio of stocks that currently are worth $100. The futures have a life of 90 days, and during that time, the stocks will pay dividends of $0.75 in 30 days,...

Q: Calculate the net effect that a change in the annually compounded risk

Calculate the net effect that a change in the annually compounded risk-free rate from 6.83 percent to 6.60 percent would make on the price of a commodity futures contract whose spot price as of March...

Q: Assume that there is a forward market for a commodity. The

Assume that there is a forward market for a commodity. The forward price of the commodity is $45. The contract expires in one year. The risk-free rate is 10 percent. Now six months later, the spot pri...

Q: Suppose you are concerned about your firm’s jet fuel exposure. Further

Suppose you are concerned about your firm’s jet fuel exposure. Further, your analysis suggests the best futures contract to hedge jet fuel is unleaded gasoline. The fuel volatility (standard deviation...

Q: On November 1, an analyst who has been studying a firm

On November 1, an analyst who has been studying a firm called Computer Sciences believes that the company will make a major announcement before the end of the year. Computer Sciences currently is pric...

Q: You are the manager of a stock portfolio worth $10,

You are the manager of a stock portfolio worth $10,500,000. It has a beta of 1.15. During the next three months, you expect a correction in the market that will take the market down about 5 percent; t...

Q: The manager of a $20 million portfolio of domestic stocks with

The manager of a $20 million portfolio of domestic stocks with a beta of 1.10 would like to begin diversifying internationally. He would like to sell $5 million of domestic stock and purchase $5 milli...

Q: As we discussed in the chapter, futures can be used to

As we discussed in the chapter, futures can be used to eliminate systematic risk in a stock portfolio, leaving it essentially a risk-free portfolio. A portfolio manager can achieve the same result, ho...

Q: You plan to buy 1,000 shares of Swiss International Airlines

You plan to buy 1,000 shares of Swiss International Airlines stock. The current price is SF950. The current exchange rate is $0.7254/SF. You are interested in speculating on the stock but do not want...

Q: Suppose you are a dealer in sugar. It is September 26

Suppose you are a dealer in sugar. It is September 26, and you hold 112,000 pounds of sugar worth $0.0479 per pound. The price of a futures contract expiring in January is $0.0550 per pound. Each cont...

Q: On January 2 of a particular year, an American firm decided

On January 2 of a particular year, an American firm decided to close out its account at a Canadian bank on February 28. The firm is expected to have 5 million Canadian dollars in the account at the ti...

Q: On January 31, a firm learns that it will have additional

On January 31, a firm learns that it will have additional funds available on May 31. It will use the funds to purchase $5,000,000 par value of the APCO 9 1/2 percent bonds maturing in about 21 years....

Q: Suppose there is a commodity in which the expected future spot price

Suppose there is a commodity in which the expected future spot price is $60. To induce investors to buy futures contracts, a risk premium of $4 is required. To store the commodity for the life of the...

Q: On March 16, the June Treasury bond futures contract was priced

On March 16, the June Treasury bond futures contract was priced at 100 17/32 and the September contract was at 99 17/32. Determine the implied repo rate on the spread. Assume that the cheapest bond to...

Q: You are the manager of a bond portfolio of $10 million

You are the manager of a bond portfolio of $10 million face value of bonds worth $9,448,456. The portfolio has a yield of 12.25 percent and a duration of 8.33. You plan to liquidate the portfolio in s...

Q: Rainy Day Insurance Company maintains an extensive portfolio of bond investments classified

Rainy Day Insurance Company maintains an extensive portfolio of bond investments classified as available-for-sale securities under ASC 320. The bond investments have a variety of fixed interest rates...

Q: The December Eurodollar futures contract is quoted as 98.40 and

The December Eurodollar futures contract is quoted as 98.40 and a company plans to borrow $8 million for three months starting in December at LIBOR plus 0.5%. (a) What rate can the company lock in by...

Q: It is March 10, 2017. The cheapest-to-

It is March 10, 2017. The cheapest-to-deliver bond in a December 2017 Treasury bond futures contract is an 8% coupon bond, and delivery is expected to be made on December 31, 2017. Coupon payments on...

Q: A Canadian company wishes to create a Canadian LIBOR futures contract from

A Canadian company wishes to create a Canadian LIBOR futures contract from a U.S. Eurodollar futures contract and forward contracts on foreign exchange. Using an example, explain how the company shoul...

Q: On June 25, 2017, the futures price for the June

On June 25, 2017, the futures price for the June 2017 bond futures contract is 118-23. (a) Calculate the conversion factor for a bond maturing on January 1, 2033, paying a coupon of 10%. (b) Calculat...

Q: A portfolio manager plans to use a Treasury bond futures contract to

A portfolio manager plans to use a Treasury bond futures contract to hedge a bond portfolio over the next 3 months. The portfolio is worth $100 million and will have a duration of 4.0 years in 3 month...

Q: Estimate delta, gamma, and theta from the tree in Example

Estimate delta, gamma, and theta from the tree in Example 21.3. Explain how each can be interpreted.

Q: Sixty futures contracts are used to hedge an exposure to the price

Sixty futures contracts are used to hedge an exposure to the price of silver. Each futures contract is on 5,000 ounces of silver. At the time the hedge is closed out, the basis is $0.20 per ounce. Wha...

Q: A trader owns 55,000 units of a particular asset and

A trader owns 55,000 units of a particular asset and decides to hedge the value of her position with futures contracts on another related asset. Each futures contract is on 5,000 units. The spot price...

Q: One orange juice futures contract is on 15,000 pounds of

One orange juice futures contract is on 15,000 pounds of frozen concentrate. Suppose that in September 2017 a company sells a March 2019 orange juice futures contract for 120 cents per pound. At the e...

Q: A company enters into a short futures contract to sell 5,

A company enters into a short futures contract to sell 5,000 bushels of wheat for 750 cents per bushel. The initial margin is $3,000 and the maintenance margin is $2,000. What price change would lead...

Q: Show that, if C is the price of an American call

Show that, if C is the price of an American call option on a futures contract when the strike price is K and the maturity is T, and P is the price of an American put on the same futures contract with...

Q: Consider an American futures call option where the futures contract and the

Consider an American futures call option where the futures contract and the option contract expire at the same time. Under what circumstances is the futures option worth more than the corresponding Am...

Q: What is the delta of a short position in 1,000

What is the delta of a short position in 1,000 European call options on silver futures? The options mature in 8 months, and the futures contract underlying the option matures in 9 months. The current...

Q: In Problem 19.10, what initial position in 9-

In Problem 19.10, what initial position in 9-month silver futures is necessary for delta hedging? If silver itself is used, what is the initial position? If 1-year silver futures are used, what is the...

Q: Suppose that you enter into a short futures contract to sell July

Suppose that you enter into a short futures contract to sell July silver for $17.20 per ounce. The size of the contract is 5,000 ounces. The initial margin is $4,000, and the maintenance margin is $3,...

Q: The party with a short position in a futures contract sometimes has

The party with a short position in a futures contract sometimes has options as to the precise asset that will be delivered, where delivery will take place, when delivery will take place, and so on. Do...

Q: The CME Group offers a futures contract on long-term Treasury

The CME Group offers a futures contract on long-term Treasury bonds. Characterize the traders likely to use this contract.

Q: In the corn futures contract traded on an exchange, the following

In the corn futures contract traded on an exchange, the following delivery months are available: March, May, July, September, and December. Which of the available contracts should be used for hedging...

Q: Suppose that a bond portfolio with a duration of 12 years is

Suppose that a bond portfolio with a duration of 12 years is hedged using a futures contract in which the underlying asset has a duration of 4 years. What is likely to be the impact on the hedge of th...

Q: The 350-day LIBOR rate is 3% with continuous compounding

The 350-day LIBOR rate is 3% with continuous compounding and the forward rate calculated from a Eurodollar futures contract that matures in 350 days is 3.2% with continuous compounding. Estimate the 4...

Q: A trader enters into a short cotton futures contract when the futures

A trader enters into a short cotton futures contract when the futures price is 50 cents per pound. The contract is for the delivery of 50,000 pounds. How much does the trader gain or lose if the cotto...

Q: Explain why a futures contract can be used for either speculation or

Explain why a futures contract can be used for either speculation or hedging.

Q: A futures contract is used for hedging. Explain why the daily

A futures contract is used for hedging. Explain why the daily settlement of the contract can give rise to cash-flow problems.

Q: The author’s website (www-2.rotman.utoronto.

The author’s website (www-2.rotman.utoronto.ca/hull/data) contains daily closing prices for the crude oil futures contract and the gold futures contract. You are required to download the data for crud...

Q: Suppose that F1 and F2 are two futures contracts on the same

Suppose that F1 and F2 are two futures contracts on the same commodity with times to maturity, t1 and t2, where t2 > t1. Prove that where r is the interest rate (assumed constant) and there are no...

Q: When a known future cash outflow in a foreign currency is hedged

When a known future cash outflow in a foreign currency is hedged by a company using a forward contract, there is no foreign exchange risk. When it is hedged using futures contracts, the daily settleme...

Q: It is July 30, 2018. The cheapest-to-

It is July 30, 2018. The cheapest-to-deliver bond in a September 2018 Treasury bond futures contract is a 13% coupon bond, and delivery is expected to be made on September 30, 2018. Coupon payments on...

Q: It is July 16. A company has a portfolio of stocks

It is July 16. A company has a portfolio of stocks worth $100 million. The beta of the portfolio is 1.2. The company would like to use the December futures contract on a stock index to change the beta...

Q: A cattle farmer expects to have 120,000 pounds of live

A cattle farmer expects to have 120,000 pounds of live cattle to sell in 3 months. The live cattle futures contract traded by the CME Group is for the delivery of 40,000 pounds of cattle. How can the...

Q: ‘‘When a futures contract is traded on the floor of the

‘‘When a futures contract is traded on the floor of the exchange, it may be the case that the open interest increases by one, stays the same, or decreases by one.’’ Explain this statement.

Q: A farmer expects to sell 5,000 bushels of corn on

A farmer expects to sell 5,000 bushels of corn on January 1 of Year 2. On December 1 of Year 1, the farmer enters into a futures contract to sell the corn on January 1 of Year 2 at $2.30 per bushel. T...

Q: The mining company produces 25,000 pounds of copper each month

The mining company produces 25,000 pounds of copper each month in its mining operations. To eliminate the price risk associated with copper sales, on December 1 of Year 1, the mining company entered i...

Q: Refer to Practice 19-5 and complete the following:

Refer to Practice 19-5 and complete the following: 1. Compute the total amount (including all futures-related cash flows) that the mining company will receive to sell 25,000 pounds of copper in Januar...

Q: Refer to Table 25.2 in the text to answer this

Refer to Table 25.2 in the text to answer this question. Suppose you purchase a March 2015 cocoa futures contract on January 8, 2015, at the last price of the day. What will your profit or loss be if...

Q: If a U.S. company exports its goods to Japan

If a U.S. company exports its goods to Japan, how would it use a futures contract on Japanese yen to hedge its exchange rate risk? Would it buy or sell yen futures? Does the way the exchange rate is q...

Q: During the third quarter of the current year, Beamer Manufacturing Company

During the third quarter of the current year, Beamer Manufacturing Company invested in derivative instruments for a variety of reasons. The various investments and hedging relationships are as follows...

Q: The chief financial officer (CFO) of Baxter International has employed

The chief financial officer (CFO) of Baxter International has employed the use of hedges in a variety of contexts over the first quarter of the current calendar year as follows: Futures Contract&md...

Q: What is the difference between a futures contract and an option contract

What is the difference between a futures contract and an option contract? Do the buyer of a futures contract and the buyer of an option contract have the same rights? What about the seller?

Q: You have been assigned to implement a three-month hedge for

You have been assigned to implement a three-month hedge for a stock mutual fund portfolio that primarily invests in medium-sized companies. The mutual fund has a beta of 1.15 measured relative to the...

Q: A non-dividend-paying stock is currently priced at $

A non-dividend-paying stock is currently priced at $48.15 per share. A futures contract maturing in five months has a price of $48.56 and the risk-free rate is 4 percent. Describe how you could make a...

Q: Using Figure 14.1, answer the following questions:

Using Figure 14.1, answer the following questions: a. How many exchanges trade wheat futures contracts? b. If you have a position in 10 gold futures, what quantity of gold underlies your position? c....

Q: What are the similarities and differences in taking the short side of

What are the similarities and differences in taking the short side of a futures contract and short selling a stock? How do the cash flows differ?

Q: Is it true that a futures contract represents a zero-sum

Is it true that a futures contract represents a zero-sum game, meaning that the only way for a buyer to win is for a seller to lose, and vice versa?

Q: Using Figure 14.1, answer the following questions:

Using Figure 14.1, answer the following questions: a. What was the settle price for March 2016 coffee futures on this date? What is the total dollar value of this contract at the close of trading for...

Q: Referring to Figure 14.1, what is the total open

Referring to Figure 14.1, what is the total open interest on the December 2015 Japanese yen contract? Does it represent long positions, short positions, or both? Based on the settle price on the contr...

Q: A stock futures contract is priced at $27.18.

A stock futures contract is priced at $27.18. The stock has a dividend yield of 1.25 percent and the risk-free rate is 2.5 percent. If the futures contract matures in six months, what is the current s...

Q: You are long 20 November 2015 soybean futures contracts. Calculate your

You are long 20 November 2015 soybean futures contracts. Calculate your dollar profit or loss from this trading day using Figure 14.1. Figure 14.1:

Q: You are short 15 March 2016 corn futures contracts. Calculate your

You are short 15 March 2016 corn futures contracts. Calculate your dollar profit or loss from this trading day using Figure 14.1. Figure 14.1:

Q: You are short 30 March 2016 five-year Treasury note futures

You are short 30 March 2016 five-year Treasury note futures contracts. Calculate your profit or loss from this trading day using Figure 14.1. Figure 14.1:

Q: A non-dividend-paying stock is currently priced at $

A non-dividend-paying stock is currently priced at $16.40. The risk-free rate is 3 percent and a futures contract on the stock matures in six months. What price should the futures be?

Q: A non-dividend-paying stock has a futures contract with

A non-dividend-paying stock has a futures contract with a price of $94.90 and a maturity of two months. If the risk-free rate is 4.5 percent, what is the price of the stock?

Q: A non-dividend-paying stock has a current share price

A non-dividend-paying stock has a current share price of $42.60 and a futures price of $42.95. If the maturity of the futures contract is four months, what is the risk-free rate?

Q: The contract size for platinum futures is 50 troy ounces. Suppose

The contract size for platinum futures is 50 troy ounces. Suppose you need 300 troy ounces of platinum and the current futures price is $2,025 per ounce. How many contracts do you need to purchase? Ho...

Q: When hedging its exchange rate risk on the freight car sale,

When hedging its exchange rate risk on the freight car sale, Jackson used a futures contract to: a. Sell €15 million in exchange for $18.75 million. b. Buy €15 million in exchange for $18.75 million....

Q: To hedge the foreign exchange risk relative to the Canadian dollar,

To hedge the foreign exchange risk relative to the Canadian dollar, Jackson should: a. Buy a futures contract to exchange $7,083,333 for C$8.5 million. b. Buy a futures contract to exchange $6,390,977...

Q: You went long 20 June 2016 crude oil futures contracts at a

You went long 20 June 2016 crude oil futures contracts at a price of $42.18. Looking back at Figure 14.1, if you closed your position at the settle price on this day, what was your profit? Figure 14....

Q: You shorted 15 March 2016 British pound futures contracts at the high

You shorted 15 March 2016 British pound futures contracts at the high price for the day. Looking back at Figure 14.1, if you closed your position at the settle price on this day, what was your profit?...

Q: The cereal division of Kellogg Company intends to test market next year

The cereal division of Kellogg Company intends to test market next year an organic corn based cereal to be called NutriFlakesTR. The business plan calls for production to begin in late May 2015, with...

Q: Required: 1. Which of the following qualifies as a

Required: 1. Which of the following qualifies as a hedged item? a. A company’s work-in-process inventory of unfinished washers, dryers, and refrigerators. b. Credit card receivables at JCPenney. c. Bu...

Q: Is a European down-and-out option on an asset

Is a European down-and-out option on an asset worth the same as a European down and out option on the asset’s futures price for a futures contract maturing at the same time as the option?

Q: Suppose you purchase a Treasury bond futures contract at a price of

Suppose you purchase a Treasury bond futures contract at a price of 95 percent of the face value, $100,000. a. What is your obligation when you purchase this futures contract? b. Assume that the Treas...

Q: Suppose an investor has a $1 million long position in T

Suppose an investor has a $1 million long position in T-bond futures. The investor’s broker requires a maintenance margin of 4 percent, which is the amount currently in the investor’s account. a. Supp...

Q: What must happen to the price of the underlying T-bond

What must happen to the price of the underlying T-bond futures contract for the purchaser of a call option on T-bond futures to make money? How does the writer of the call option make money?

Q: At the beginning of the quarter, you purchased a $100

At the beginning of the quarter, you purchased a $100,000 Treasury bond futures contract for 108-12. Calculate the profit on the futures contract if the price at the end of the quarter is 106-16, 108-...

Q: Refer to Table 10–4. a. What was

Refer to Table 10–4. a. What was the settlement price on the December 2017 Eurodollar futures contract on August 3, 2016? b. How many five-year Treasury note futures contracts traded...

Q: Refer to Table 10–6. a. How many

Refer to Table 10–6. a. How many ExxonMobil October 2016 $90.00 put options were outstanding at the open of trading on August 3, 2016? b. What was the closing price of a 10-year Trea...

Q: T. J. Patrick is a young, successful industrial designer

T. J. Patrick is a young, successful industrial designer in Portland, Oregon, who enjoys the excitement of commodities speculation. T. J. has been dabbling in commodities since he was a teenager—he wa...

Q: Jim Pernelli and his wife, Polly, live in Augusta,

Jim Pernelli and his wife, Polly, live in Augusta, Georgia. Like many young couples, the Pernellis are a two-income family. Jim and Polly are both college graduates and hold high-paying jobs. Jim has...

Q: What are futures options? Explain how they can be used by

What are futures options? Explain how they can be used by speculators. Why would an investor want to use an option on an interest rate futures contract rather than the futures contract itself?

Q: A quote for a futures contract for British pounds is 1.

A quote for a futures contract for British pounds is 1.6683. The contract size for British pounds is 62,500. What is the dollar equivalent of this contract?

Q: You have purchased a futures contract for euros. The contract is

You have purchased a futures contract for euros. The contract is for 125,000 euros and the quote was 1.1636. On the delivery date, the exchange quote is 1.1050. Assuming you took delivery of the euros...

Q: Refer to Problem 12. How does consideration of basis risk change

Refer to Problem 12. How does consideration of basis risk change your answers? a. Compute the number of T-bond futures contracts required to construct a macrohedge if T-bond futures are priced at 96 a...

Q: Village Bank has $240 million worth of assets with a duration

Village Bank has $240 million worth of assets with a duration of 14 years and liabilities worth $210 million with a duration of four years. In the interest of hedging interest rate risk, Village Bank...

Q: Suppose that an FI manager writes a call option on a T

Suppose that an FI manager writes a call option on a T-bond futures contract with an exercise price of 114 at a quoted price of 0-55. What type of opportunities or obligations does the manager have?

Q: Suppose that you purchase a Treasury bond futures contract at $95

Suppose that you purchase a Treasury bond futures contract at $95 per $100 of face value. a. What is your obligation when you purchase this futures contract? b. If an FI purchases this contract, in wh...

Q: A company enters into a short futures contract to sell 5,

A company enters into a short futures contract to sell 5,000 bushels of wheat for 250 cents per bushel. The initial margin is $3,000 and the maintenance margin is $2,000. What price change would lead...

Q: Hart Golf Co. uses titanium in the production of its specialty

Hart Golf Co. uses titanium in the production of its specialty drivers. Hart anticipates that it will need to purchase 200 ounces of titanium in November 2017, for clubs that will be sold in advance o...

Q: LEW Jewelry Co. uses gold in the manufacture of its products

LEW Jewelry Co. uses gold in the manufacture of its products. LEW anticipates that it will need to purchase 500 ounces of gold in October 2017, for jewelry that will be shipped for the holiday shoppin...

Q: How does a futures contract work?

How does a futures contract work?

Q: During the current year, the management of Hanover, Inc.,

During the current year, the management of Hanover, Inc., entered into a futures contract to hedge the price of silver that will be needed for next year’s production. The contract, which is held by Ha...

Q: Refer to Table 23.1 in the text to answer this

Refer to Table 23.1 in the text to answer this question. Suppose you purchase a March 2017 cocoa futures contract this day at the last price of the day. What will your profit or loss be if cocoa price...

Q: Refer to Table 23.1 in the text to answer this

Refer to Table 23.1 in the text to answer this question. Suppose you purchase a March 2017 cocoa futures contract this day at the last price of the day. What will your profit or loss be if cocoa price...

Q: The treasurer for Pittsburgh Iron Works wishes to use financial futures to

The treasurer for Pittsburgh Iron Works wishes to use financial futures to hedge her interest rate exposure. She will sell five Treasury futures contracts at $138,000 per contract. It is July and the...

Q: One of the most important operating expenses for the Olde Virginia Brick

One of the most important operating expenses for the Olde Virginia Brick Company is natural gas, which is used to bake and dry the bricks. Natural gas prices have recently been quite volatile, now app...

Q: On a given day, a new futures contract starts to trade

On a given day, a new futures contract starts to trade. There are five participants in the market labelled as investors V, W, X, Y, and Z. Four sets of trades for the day were as follows: Investor V b...

Q: certain group of futures traders may be interested only in the financial

certain group of futures traders may be interested only in the financial exposure of the underlying asset. If this is the case, do you think the open interest will increase or decrease as the futures...

Q: If the trading volume of a futures contract has been increasing over

If the trading volume of a futures contract has been increasing over the past 5 days, does this mean that the open interest has also been increasing?

Q: 1. Which of the following statements is false? a

1. Which of the following statements is false? a. A spot price is a price today for immediate delivery. b. If a Canadian firm has to pay U.S. dollars in the future, it worries about the potential depr...

Q: 1. Which of the following statements concerning Government of Canada bond

1. Which of the following statements concerning Government of Canada bond futures is false? a. The contract price is quoted per $100. b. A maximum position limit is set to prevent a single dominant ho...

Q: Refer to BE16-4. Assume the same facts except that

Refer to BE16-4. Assume the same facts except that the forward contract is a futures contract that trades on the Futures Exchange. Ginseng Inc. was required to deposit $30 with the stockbroker as a ma...

Q: Refer to E16-2. Assume the same facts except that

Refer to E16-2. Assume the same facts except that the forward contract is a futures contract that trades on the Futures Exchange. On January 1, 2017, Roper is required to deposit $65 with the stockbro...

Q: The following situations occur independently. 1. A company knows

The following situations occur independently. 1. A company knows that it will require a large quantity of euros to pay for some imports in three months. The current exchange rate is satisfactory, and...

Q: LEW Jewellery Corp. uses gold in the manufacture of its products

LEW Jewellery Corp. uses gold in the manufacture of its products. LEW anticipates that it will need to purchase 500 ounces of gold in October 2017 for jewellery that will be shipped for the holiday sh...

Q: Refer to BE16.4. Assume the same facts except that

Refer to BE16.4. Assume the same facts except that the forward contract is a futures contract that trades on the Futures Exchange. Ginseng Inc. was required to deposit $30 with the stockbroker as a ma...

Q: Refer to E16.2. Assume the same facts except that

Refer to E16.2. Assume the same facts except that the forward contract is a futures contract that trades on the Futures Exchange. On January 1, 2020, Roper is required to deposit $65 with the stockbro...

Q: LEW Jewellery Corp. uses gold in the manufacture of its products

LEW Jewellery Corp. uses gold in the manufacture of its products. LEW anticipates that it will need to purchase 500 ounces of gold in October 2020 for jewellery that will be shipped for the holiday sh...

Q: Refer to Table 23.1 in the text to answer this

Refer to Table 23.1 in the text to answer this question. Suppose you purchase a September 2020 cocoa futures contract this day at the last price of the day. What will your profit or loss be if cocoa p...

Q: If a U.S. company exports its goods to Japan

If a U.S. company exports its goods to Japan, how would it use a futures contract on Japanese yen to hedge its exchange rate risk? Would it buy or sell yen futures? In answering, assume that the excha...

Q: Suppose that the relationship between the rate of return on Digital Computer

Suppose that the relationship between the rate of return on Digital Computer Corp. stock, the market index, and a computer industry index can be described by the following regression equation: rDigita...

Q: Identify the fundamental distinction between a futures contract and an option contract

Identify the fundamental distinction between a futures contract and an option contract, and briefly explain the difference in the manner that futures and options modify portfolio risk.

Q: Donna Doni, CFA, wants to explore potential inefficiencies in the

Donna Doni, CFA, wants to explore potential inefficiencies in the futures market. The TOBEC stock index has a spot value of 185. TOBEC futures contracts are settled in cash and underlying contract val...

Q: Janice Delsing, a U.S.-based portfolio manager,

Janice Delsing, a U.S.-based portfolio manager, manages an $800 million portfolio ($600 million in stocks and $200 million in bonds). In reaction to anticipated short-term market events, Delsing wishe...

Q: a. Pamela Itsuji, a currency trader for a Japanese bank

a. Pamela Itsuji, a currency trader for a Japanese bank, is evaluating the price of a 6-month Japanese yen/U.S. dollar currency futures contract. She gathers the following currency and interest rate d...

Q: The multiplier for a futures contract on a stock market index is

The multiplier for a futures contract on a stock market index is $50. The maturity of the contract is 1 year, the current level of the index is 2,250, and the risk-free interest rate is .5% per month....

Q: Are the following statements true or false? Why? a

Are the following statements true or false? Why? a. All else equal, the futures price on a stock index with a high dividend yield should be higher than the futures price on an index with a low dividen...

Q: A corporation plans to issue $10 million of 10-year

A corporation plans to issue $10 million of 10-year bonds in three months. At current yields the bonds would have modified duration of 8 years. The T-note futures contract is selling at F0 = 100 and h...

Q: Consider the futures contract written on the S&P 500 index

Consider the futures contract written on the S&P 500 index and maturing in one year. The interest rate is 3%, and the future value of dividends expected to be paid over the next year is $35. The curre...

Q: Suppose that the value of the S&P 500 stock index

Suppose that the value of the S&P 500 stock index is 2,000. a. If each E-mini futures contract (with a contract multiplier of $50) costs $25 to trade with a discount broker, how much is the transactio...

Q: Sandra Kapple asks Maria VanHusen about using futures contracts to protect the

Sandra Kapple asks Maria VanHusen about using futures contracts to protect the value of the Star Hospital Pension Plan’s bond portfolio if interest rates rise. VanHusen states: a. “Selling a bond futu...

Q: OneChicago has just introduced a single-stock futures contract on Brandex

OneChicago has just introduced a single-stock futures contract on Brandex stock, a company that currently pays no dividends. Each contract calls for delivery of 1,000 shares of stock in 1 year. The T-...

Q: a. A single-stock futures contract on a non-

a. A single-stock futures contract on a non-dividend-paying stock with current price $150 has a maturity of 1 year. If the T-bill rate is 3%, what should the futures price be? b. What should the futur...

Q: Farmer Brown grows Number 1 red corn and would like to hedge

Farmer Brown grows Number 1 red corn and would like to hedge the value of the coming harvest. However, the futures contract is traded on the Number 2 yellow grade of corn. Suppose that yellow corn typ...

Q: In 20X0, the cereal division of Bloom Company (a fictional

In 20X0, the cereal division of Bloom Company (a fictional company) decided to test marketin 20X1 an organic corn-based cereal to be called Healthcrisp. The business plan calls for production to begin...

Q: Calculate the value of a six-month futures contract on a

Calculate the value of a six-month futures contract on a Treasury bond. You have the following information: 1. Six-month interest rate: 10% per year, or 4.9% for six months. 2. Spot price of bond: 95....

Q: A conceptual question in accounting for derivatives is this: Should gains

A conceptual question in accounting for derivatives is this: Should gains and losses on a hedge instrument be recorded as they occur, or should they be recorded to coincide (match) with income effects...

Q: Arlington Steel Company is a producer of raw steel and steel-

Arlington Steel Company is a producer of raw steel and steel-related products. On January 3, 2022, Arlington enters into a firm commitment to purchase 10,000 tons of iron ore pellets from a supplier t...

Q: Indicate (by abbreviation) the type of hedge each activity described

Indicate (by abbreviation) the type of hedge each activity described below would represent. Hedge Type: FV. Fair value hedge CF. Cash flow hedge FC. Foreign currency hedge N. Would not qualify as a he...

Q: On January 1, you sold one February maturity S&P

On January 1, you sold one February maturity S&P 500 Index futures contract at a futures price of 3,000. If the futures price is 3,050 at contract maturity, what is your profit? The contract multiplie...

Q: A stock will pay a dividend of D dollars in one year

A stock will pay a dividend of D dollars in one year, which is when a futures contract matures. Consider the following strategy: Buy the stock, short a futures contract on the stock, and borrow S0 dol...

Q: a. A single stock futures contract on a nondividend-paying

a. A single stock futures contract on a nondividend-paying stock with current price $150 has a maturity of one year. If the T-bill rate is 3%, what should the futures price be? b. What should the fut...

Q: One Chicago has just introduced a new single stock futures contract on

One Chicago has just introduced a new single stock futures contract on the stock of Brandex, a company that currently pays no dividends. Each contract calls for delivery of 1,000 shares of stock in on...

Q: The multiplier for a futures contract on the stock-market index

The multiplier for a futures contract on the stock-market index is $50. The maturity of the contract is one year, the current level of the index is 3,000, and the risk-free interest rate is 0.5% per m...

Q: The margin requirement on the S&P 500 futures contract is

The margin requirement on the S&P 500 futures contract is 10%, and the stock index is currently 3,000. Each contract has a multiplier of $50. a. How much margin must be put up for each contract sold?...

Q: The multiplier for a futures contract on a stock market index is

The multiplier for a futures contract on a stock market index is $50. The maturity of the contract is one year, the current level of the index is 3,000, and the risk-free interest rate is 0.2% per mon...

Q: A corporation plans to issue $10 million of 10-year

A corporation plans to issue $10 million of 10-year bonds in three months. At current yields, the bonds would have modified duration of eight years. The T-note futures contract is selling at F0 = 100...

Q: The S&P 500 Index is currently at 3,000

The S&P 500 Index is currently at 3,000. You manage a $15 million indexed equity portfolio. The S&P 500 futures contract has a multiplier of $50. a. If you are temporarily bearish on the stock marke...

Q: A one-year gold futures contract is selling for $1

A one-year gold futures contract is selling for $1,558. Spot gold prices are $1,500 and the one-year risk-free rate is 2%. a. According to spot-futures parity, what should be the futures price? b. W...

Q: You purchase a Treasury-bond futures contract with an initial margin

You purchase a Treasury-bond futures contract with an initial margin requirement of 15% and a futures price of $115,098. The contract is traded on a $100,000 underlying par value bond. If the futures...

Q: Several months ago you purchased a call option on a crude oil

Several months ago you purchased a call option on a crude oil futures contract with an exercise price of $6,300. Today is the expiration date, and the futures price is $6,350. a.Will you exercise th...

Q: The open interest on a futures contract is the total number of

The open interest on a futures contract is the total number of outstanding: a. Contracts. b. Unhedged positions. c. Clearinghouse positions. d. Long and short positions.

Q: A silver futures contract requires the seller to deliver 5,000

A silver futures contract requires the seller to deliver 5,000 ounces of silver. Jerry Harris sells one July silver futures contract at a price of $28 per ounce, posting a $6,000 initial margin. If th...

Q: Futures contracts and options contracts can be used to modify risk.

Futures contracts and options contracts can be used to modify risk. Identify the fundamental distinction between a futures contract and an option contract, and briefly explain the difference in the ma...

Q: Janice Delsing, a U.S.-based portfolio manager,

Janice Delsing, a U.S.-based portfolio manager, manages an $800 million portfolio ($600 million in stocks and $200 million in bonds). In reaction to anticipated short-term market events, Delsing wishe...

Q: A conceptual question in accounting for derivatives is this: Should gains

A conceptual question in accounting for derivatives is this: Should gains and losses on a hedge instrument be recorded as they occur, or should they be recorded to coincide (match) with income effects...

Q: Arlington Steel Company is a producer of raw steel and steel-

Arlington Steel Company is a producer of raw steel and steel-related products. On January 3, 2025, Arlington enters into a firm commitment to purchase 10,000 tons of iron ore pellets from a supplier...

Q: Sanctums, Inc., purchases wheat for use in its food manufacturing

Sanctums, Inc., purchases wheat for use in its food manufacturing process. Sanctums operates in a highly competitive industry and is rarely able to increase its sales price. ∙ On Jan...

Q: Assume that on November 1, the spot rate of the British

Assume that on November 1, the spot rate of the British pound was $1.58 and the price on a December futures contract was $1.59. Assume that the pound depreciated during November so that by November 30...

Q: Assume that a March futures contract on Mexican pesos was available in

Assume that a March futures contract on Mexican pesos was available in January for $0.09 per unit. Also assume that forward contracts were available for the same settlement date at a price of $0.092 p...

Q: Currency futures markets are commonly used as a means of capitalizing on

Currency futures markets are commonly used as a means of capitalizing on shifts in currency values, because the value of a futures contract tends to move in line with the change in the corresponding c...

Q: One year ago, you sold a put option on 100,

One year ago, you sold a put option on 100,000 euros with an expiration date of one year. You received a premium on the put option of $0.04 per unit; the exercise price was $1.22. Assume that one year...

Q: On July 2, the two-month futures rate of the

On July 2, the two-month futures rate of the Mexican peso contained a 2 percent discount (unannualized). A call option on pesos was available with an exercise price that was equal to the spot rate. In...

Q: Assume that one year ago, the spot rate of the British

Assume that one year ago, the spot rate of the British pound was $1.70, and the one-year futures contract of the British pound exhibited a discount of 6 percent. At that time, you sold futures contrac...

Q: Assume that interest rate parity exists. The spot rate of the

Assume that interest rate parity exists. The spot rate of the Argentine peso is $0.40. The one-year interest rate in the United States is 7 percent; the comparable rate is 12 percent in Argentina. Ass...

Q: The U.S. three month interest rate (unannualized)

The U.S. three month interest rate (unannualized) is 1 percent. The Canadian three-month interest rate (unannualized) is 4 percent. Interest rate parity exists. The expected inflation over this period...

Q: The United States and the country of Rueland have the same real

The United States and the country of Rueland have the same real interest rate of 3 percent. The expected inflation over the next year is 6 percent in the United States versus 21 percent in Rueland. In...

Q: Assume that you believe purchasing power parity exists. You expect that

Assume that you believe purchasing power parity exists. You expect that inflation in Canada during the next year will be 3 percent and inflation in the United States will be 8 percent. Today the spot...

Q: Blades, Inc. needs to order supplies two months ahead of

Blades, Inc. needs to order supplies two months ahead of the delivery date. It is considering an order from a Japanese supplier that requires a payment of 12.5 million yen payable as of the delivery d...

Q: As a stock portfolio manager, you have investments in many U

As a stock portfolio manager, you have investments in many U.S. stocks and plan to hold these stocks over a long-term period. However, you are concerned that the stock market may experience a temporar...

Q: Egan Company purchased a futures contract on Treasury bonds that specified a

Egan Company purchased a futures contract on Treasury bonds that specified a price of 91-00. When this position was closed out, the price of the Treasury bond futures contract was 90-10. Determine th...

Q: R. C. Clark sold a futures contract on Treasury bonds

R. C. Clark sold a futures contract on Treasury bonds that specified a price of 92-10. When the position was closed out, the price of Treasury bond futures contract was 93-00. Determine the profit or...

Q: Marks Insurance Company sold stock index futures that specified an index of

Marks Insurance Company sold stock index futures that specified an index of 1690. When the position was closed out, the index specified by the futures contract was 1,720. Determine the profit or loss,...

Q: DePaul Insurance Company purchased a call option on a stock index futures

DePaul Insurance Company purchased a call option on a stock index futures contract. The option premium is quoted as $6. The exercise price is $1,430. Assume the index on the futures contract becomes $...

Q: Use the following information to determine the probability distribution of per unit

Use the following information to determine the probability distribution of per unit gains from selling Mexican peso futures. The spot rate of peso is $.10. The price of peso futures per unit is $.102...

Q: How does the price of a financial futures contract change as the

How does the price of a financial futures contract change as the market price of the security it represents changes? Why?

Q: Hillary considers herself a shrewd commodities investor. She bought a May

Hillary considers herself a shrewd commodities investor. She bought a May cotton contract (50,000 pounds) at $0.7744 a pound and later sold it at $0.8104 a pound. What were her profit and her return o...

Q: A quote for a futures contract for British pounds is $1

A quote for a futures contract for British pounds is $1.6683/£. The contract size for British pounds is £62,500. What is the dollar equivalent of this contract?

Q: You have purchased a futures contract for euros. The contract is

You have purchased a futures contract for euros. The contract is for €125,000, and the quote was $1.1636/€. On the delivery date, the exchange quote is $1.1050/€. Assuming you took delivery of the eur...

Q: T. J. Patrick is a young, successful industrial designer

T. J. Patrick is a young, successful industrial designer in Portland, Oregon, who enjoys the excitement of commodities speculation. T. J. has been dabbling in commodities since he was a teenager—he wa...

Q: Jim Pernelli and his wife, Polly, live in Augusta,

Jim Pernelli and his wife, Polly, live in Augusta, Georgia. Like many young couples, the Pernellis are a two-income family. Jim and Polly are both college graduates and hold high paying jobs. Jim has...

Q: What are futures options? Explain how they can be used by

What are futures options? Explain how they can be used by speculators. Why would an investor want to use an option on an interest rate futures contract rather than the futures contract itself?

Q: On January 24, 2008, Société Générale, France’s second largest

On January 24, 2008, Société Générale, France’s second largest bank announced the largest trading loss in history, a staggering 4.9 billion Euro ($7.2 billion U.S.), which it blamed on a single rogue...

Q: The SweetTooth Candy Company knows it will need 10 tons of sugar

The SweetTooth Candy Company knows it will need 10 tons of sugar six months from now to implement its production plans. The company has essentially two options for acquiring the needed sugar. It can e...

Q: Refer to Table 10–4. a. What was

Refer to Table 10–4. a. What was the settlement price on the September 2020 2-year U.S. Treasury notes futures contract on March 13, 2020? b. How many five-year Treasury note futur...

Q: How many ExxonMobil May 2020 $40.00 put options were

How many ExxonMobil May 2020 $40.00 put options were outstanding at the open of trading on March 13, 2020? b. What was the settlement price of a 10-year Treasury note May 138.00 futures call option...

Q: Jack Blair, the treasurer of the Simpson Corporation (SC)

Jack Blair, the treasurer of the Simpson Corporation (SC) will need to borrow $1 million for three months starting December 20. He would like to hedge the borrowing rate with interest futures contract...