INTERNATIONAL FINANCE (21141) – SEMINAR 4

1) Assume today’s settlement price on a CME Euro futures contract is $1.3140/€. The size
of the contract is €125,000. You have a short position in one contract. Your performance
bond account currently has a balance of $1,700. The next three day’s settlement prices
are $1.3126, $1.3133, and $1.3049. Calculate the changes in the performance’s bond
account from daily marking-to-market and the balance of the performance bond account
after the third day. For simplicity, assume that neither initial margin nor maintenance
performance bond is required.
Determine the net gain or loss on the futures contract during these three days.

2) Do problem 1 again assuming that you have a long position in the futures contract.
Explain the difference between a long and a short position in the futures market.

3) Assume that you are the manager of the firm ABST and you decide to buy a Swiss franc
futures contract at a price of $0.83/SFr. You know that its size in the CME is SFr
125,000.
Determine your final net gain or loss in this CME Swiss franc contract. Suppose that the
price for the Swiss franc at the date of settlement is $0.8250/SFr.
What is your position in the futures market???

4) Citigroup sells a call option on euros (contract size €500,000) at a premium of $0.04/€. If
the exercise price is $0.91/€ and the spot price is $0.93/€, what is the Citigroup net profit
on the call option???

5) What are the basic differences between forward and futures contracts???
And between futures and options contracts???
 6) On Monday morning you hold a short position on one CME yen futures contract with
size ¥ 12.5 MM at a price of 0.009433.
You have to deposit in a collateral account $4,000 to establish your futures position, and
a maintenance performance bond of $3,400 is required during the lifetime of the futures
contract. Initially, you decide to deposit $4,100.
On Wednesday, you liquidate the contract at price $0.009351. You have to pay a $145
commission to the broker.
The settlement prices that you observe the rest of the days are $0.009481 and 0.009578
for Monday and Tuesday, respectively.
According to this information, describe your net gains and if a performance bond call
must be issued during the lifetime of the futures contract.

7) Consider the PHLX EUR European put option. The size of the contract is €10,000. This
option has a current premium, Pe, of 3.88 cents per euro. The exercise price is $1.22/€
(i.e. 122 cents per euro). We observe that at expiration date T the USD price for each
euro in the spot market is $1.2007/€.
i) What is the exercised value of the put option?
ii) Would you exercise your put option at maturity date? Why?
iii) Calculate the net gains associated to the put option. What would happen if the spot
rate at time T is $1.2725/€?
iv) Explain the implication if the premium paid for the put option is 0.88 cents per euro
instead of 3.88.

REMARKS:

 Show clearly your calculations.

 Interpret your results!!!
 Give well-reasoned answers.
 Deadline: February 26th, before 10.30h
 Include your names, surnames and seminar group.
 Deliver your seminars in PDF format.
 Send by email to your corresponding TA.