Problem 1.5.

An investor enters into a short forward contract to sell 100,000 British pounds for US
dollars at an exchange rate of 1.5000 US dollars per pound. How much does the investor
gain or lose if the exchange rate at the end of the contract is (a) 1.4900 and (b) 1.5200?

Problem 1.6.
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 cotton price at the end of the contract is (a) 48.20 cents per pound; (b)
51.30 cents per pound?

Problem 1.19.
A trader enters into a short forward contract on 100 million yen. The forward exchange
rate is $0.0090 per yen. How much does the trader gain or lose if the exchange rate at
the end of the contract is (a) $0.0084 per yen; (b) $0.0101 per yen?

Problem 1.39.
Suppose that in the situation of Table 1.1 a corporate treasurer said: I will have 1
million to sell in six months. If the exchange rate is less than 1.52, I want you to give me
1.52. If it is greater than 1.58 I will accept 1.58. If the exchange rate is between 1.52 and
1.58, I will sell the sterling for the exchange rate. How could you use options to satisfy t


Problem 2.1.
Distinguish between the terms open interest and trading volume. he treasurer?

Problem 2.4.
Suppose that in September 2015 a company takes a long position in a contract on May
2016 crude oil futures. It closes out its position in March 2016. The futures price (per
barrel) is $88.30 when it enters into the contract, $90.50 when it closes out its position,
and $89.10 at the end of December 2015. One contract is for the delivery of 1,000
barrels. What is the companys total profit? When is it realized? How is it taxed if it is (a)
a hedger and (b) a speculator? Assume that the company has a December 31 year-end.

Problem 2.29.
One orange juice future contract is on 15,000 pounds of frozen concentrate. Suppose that
in September 2014 a company sells a March 2016 orange juice futures contract for 120
cents per pound. In December 2014 the futures price is 140 cents; in December 2015 the
futures price is 110 cents; and in February 2016 it is closed out at 125 cents. The
company has a December year end. What is the company's profit or loss on the contract?
How is it realized? What is the accounting and tax treatment of the transaction if the
company is classified as a) a hedger and b) a speculator?

Problem 5.3.
Suppose that you enter into a six-month forward contract on a non-dividend-paying stock
when the stock price is $30 and the risk-free interest rate (with continuous compounding)
is 12% per annum. What is the forward price?

Remember F
0
=S
0
e
rt
!


Problem 5.4.
A stock index currently stands at 350. The risk-free interest rate is 8% per annum (with
continuous compounding) and the dividend yield on the index is 4% per annum. What
should the futures price for a four-month contract be?

Dont forget about dividend yield!


Problem 5.10.
The risk-free rate of interest is 7% per annum with continuous compounding, and the
dividend yield on a stock index is 3.2% per annum. The current value of the index is 150.
What is the six-month futures price?