国际财务管理课后习题标准答案chapter7.docx
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国际财务管理课后习题标准答案chapter7.docx
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国际财务管理课后习题标准答案chapter7
CHAPTER7FUTURESANDOPTIONSONFOREIGNEXCHANGE
SUGGESTEDANSWERSANDSOLUTIONSTOEND-OF-CHAPTER
QUESTIONSANDPROBLEMS
QUESTIONS
1.Explainthebasicdifferencesbetweentheoperationofacurrencyforwardmarketandafuturesmarket.
Answer:
TheforwardmarketisanOTCmarketwheretheforwardcontractforpurchaseorsaleofforeigncurrencyistailor-madebetweentheclientanditsinternationalbank.Nomoneychangeshandsuntilthematuritydateofthecontractwhendeliveryandreceiptaretypicallymade.Afuturescontractisanexchange-tradedinstrumentwithstandardizedfeaturesspecifyingcontractsizeanddeliverydate.Futurescontractsaremarked-to-marketdailytoreflectchangesinthesettlementprice.Deliveryisseldommadeinafuturesmarket.Ratherareversingtradeismadetocloseoutalongorshortposition.
2.Inorderforaderivativesmarkettofunctionmostefficiently,twotypesofeconomicagentsareneeded:
hedgersandspeculators.Explain.
Answer:
Twotypesofmarketparticipantsarenecessaryfortheefficientoperationofaderivativesmarket:
speculatorsandhedgers.Aspeculatorattemptstoprofitfromachangeinthefuturesprice.Todothis,thespeculatorwilltakealongorshortpositioninafuturescontractdependinguponhisexpectationsoffuturepricemovement.Ahedger,on-the-other-hand,desirestoavoidpricevariationbylockinginapurchasepriceoftheunderlyingassetthroughalongpositioninafuturescontractorasalespricethroughashortposition.Ineffect,thehedgerpassesofftheriskofpricevariationtothespeculatorwhoisbetterable,oratleastmorewilling,tobearthisrisk.
3.Whyaremostfuturespositionsclosedoutthroughareversingtraderatherthanheldtodelivery?
Answer:
Inforwardmarkets,approximately90percentofallcontractsthatareinitiallyestablishedresultintheshortmakingdeliverytothelongoftheassetunderlyingthecontract.Thisisnaturalbecausethetermsofforwardcontractsaretailor-madebetweenthelongandshort.Bycontrast,onlyaboutonepercentofcurrencyfuturescontractsresultindelivery.Whilefuturescontractsareusefulforspeculationandhedging,theirstandardizeddeliverydatesmakethemunlikelytocorrespondtotheactualfuturedateswhenforeignexchangetransactionswilloccur.Thus,theyaregenerallyclosedoutinareversingtrade.Infact,thecommissionthatbuyersandsellerspaytotransactinthefuturesmarketisasingleamountthatcoverstheround-triptransactionsofinitiatingandclosingouttheposition.
4.HowcantheFXfuturesmarketbeusedforpricediscovery?
Answer:
TotheextentthatFXforwardpricesareanunbiasedpredictoroffuturespotexchangerates,themarketanticipateswhetheronecurrencywillappreciateordepreciateversusanother.BecauseFXfuturescontractstradeinanexpirationcycle,differentcontractsexpireatdifferentperiodicdatesintothefuture.Thepatternofthepricesofthesecontractsprovidesinformationastothemarket’scurrentbeliefabouttherelativefuturevalueofonecurrencyversusanotheratthescheduledexpirationdatesofthecontracts.Onewillgenerallyseeasteadilyappreciatingordepreciatingpattern;however,itmaybemixedattimes.Thus,thefuturesmarketisusefulforpricediscovery,i.e.,obtainingthemarket’sforecastofthespotexchangerateatdifferentfuturedates.
5.Whatisthemajordifferenceintheobligationofonewithalongpositioninafutures(orforward)contractincomparisontoanoptionscontract?
Answer:
Afutures(orforward)contractisavehicleforbuyingorsellingastatedamountofforeignexchangeatastatedpriceperunitataspecifiedtimeinthefuture.Ifthelongholdsthecontracttothedeliverydate,hepaystheeffectivecontractualfutures(orforward)price,regardlessofwhetheritisanadvantageouspriceincomparisontothespotpriceatthedeliverydate.Bycontrast,anoptionisacontractgivingthelongtherighttobuyorsellagivenquantityofanassetataspecifiedpriceatsometimeinthefuture,butnotenforcinganyobligationonhimifthespotpriceismorefavorablethantheexerciseprice.Becausetheoptionownerdoesnothavetoexercisetheoptionifitistohisdisadvantage,theoptionhasaprice,orpremium,whereasnopriceispaidatinceptiontoenterintoafutures(orforward)contract.
6.Whatismeantbytheterminologythatanoptionisin-,at-,orout-of-the-money?
Answer:
Acall(put)optionwithSt>E(E>St)isreferredtoastradingin-the-money.IfSt≅Etheoptionistradingat-the-money.IfSt 7.Listthearguments(variables)ofwhichanFXcallorputoptionmodelpriceisafunction.Howdoesthecallandputpremiumchangewithrespecttoachangeinthearguments? Answer: Bothcallandputoptionsarefunctionsofonlysixvariables: St,E,ri,r$,Tandσ.Whenallelseremainsthesame,thepriceofaEuropeanFXcall(put)optionwillincrease: 1.thelarger(smaller)isS, 2.thesmaller(larger)isE, 3.thesmaller(larger)isri, 4.thelarger(smaller)isr$, 5.thelarger(smaller)r$isrelativetori,and 6.thegreaterisσ. Whenr$andriarenottoomuchdifferentinsize,aEuropeanFXcallandputwillincreaseinpricewhentheoptionterm-to-maturityincreases.However,whenr$isverymuchlargerthanri,aEuropeanFXcallwillincreaseinprice,buttheputpremiumwilldecrease,whentheoptionterm-to-maturityincreases.Theoppositeistruewhenriisverymuchgreaterthanr$.ForAmericanFXoptionstheanalysisislesscomplicated.SincealongertermAmericanoptioncanbeexercisedonanydatethatashortertermoptioncanbeexercised,orasomelaterdate,itfollowsthattheallelseremainingthesame,thelongertermAmericanoptionwillsellatapriceatleastaslargeastheshortertermoption. PROBLEMS 1.Assumetoday’ssettlementpriceonaCMEEURfuturescontractis$1.3140/EUR.Youhaveashortpositioninonecontract.Yourperformancebondaccountcurrentlyhasabalanceof$1,700.Thenextthreedays’settlementpricesare$1.3126,$1.3133,and$1.3049.Calculatethechangesintheperformancebondaccountfromdailymarking-to-marketandthebalanceoftheperformancebondaccountafterthethirdday. Solution: $1,700+[($1.3140-$1.3126)+($1.3126-$1.3133) +($1.3133-$1.3049)]xEUR125,000=$2,837.50, whereEUR125,000isthecontractualsizeofoneEURcontract. 2.Doproblem1againassumingyouhavealongpositioninthefuturescontract. Solution: $1,700+[($1.3126-$1.3140)+($1.3133-$1.3126)+($1.3049-$1.3133)]xEUR125,000=$562.50, whereEUR125,000isthecontractualsizeofoneEURcontract. Withonly$562.50inyourperformancebondaccount,youwouldexperienceamargincallrequestingthatadditionalfundsbeaddedtoyourperformancebondaccounttobringthebalancebackuptotheinitialperformancebondlevel. 3.UsingthequotationsinExhibit7.3,calculatethefacevalueoftheopeninterestintheJune2005Swissfrancfuturescontract. Solution: 2,101contractsxSF125,000=SF262,625,000. whereSF125,000isthecontractualsizeofoneSFcontract. 4.UsingthequotationsinExhibit7.3,notethattheJune2005Mexicanpesofuturescontracthasapriceof$0.08845.YoubelievethespotpriceinJunewillbe$0.09500.Whatspeculativepositionwouldyouenterintotoattempttoprofitfromyourbeliefs? Calculateyouranticipatedprofits,assumingyoutakeapositioninthreecontracts.Whatisthesizeofyourprofit(loss)ifthefuturespriceisindeedanunbiasedpredictorofthefuturespotpriceandthispricematerializes? Solution: IfyouexpecttheMexicanpesotorisefrom$0.08845to$0.09500,youwouldtakealongpositioninfuturessincethefuturespriceof$0.08845islessthanyourexpectedspotprice. Youranticipatedprofitfromalongpositioninthreecontractsis: 3x($0.09500-$0.08845)xMP500,000=$9,825.00,whereMP500,000isthecontractualsizeofoneMPcontract. Ifthefuturespriceisanunbiasedpredictoroftheexpectedspotprice,theexpectedspotpriceisthefuturespriceof$0.08845/MP.Ifthisspotpricematerializes,youwillnothaveanyprofitsorlossesfromyourshortpositioninthreefuturescontracts: 3x($0.08845-$0.08845)xMP500,000=0. 5.Doproblem4againassumingyoubelievetheJune2005spotpricewillbe$0.08500. Solution: IfyouexpecttheMexicanpesotodepreciatefrom$0.08845to$0.07500,youwouldtakeashortpositioninfuturessincethefuturespriceof$0.08845isgreaterthanyourexpectedspotprice. Youranticipatedprofitfromashortpositioninthreecontractsis: 3x($0.08845-$0.07500)xMP500,000=$20,175.00. Ifthefuturespriceisanunbiasedpredictorofthefuturespotpriceandthispricematerializes,youwillnotprofitorlosefromyourlongfuturesposition. 6.GeorgeJohnsonisconsideringapossiblesix-month$100millionLIBOR-based,floating-ratebankloantofundaprojectattermsshowninthetablebelow.JohnsonfearsapossibleriseintheLIBORratebyDecemberandwantstousetheDecemberEurodollarfuturescontracttohedgethisrisk.ThecontractexpiresDecember20,1999,hasaUS$1millioncontractsize,andadiscountyieldof7.3percent. Johnsonwillignorethecashflowimplicationsofmarkingtomarket,initialmarginrequirements,andanytimingmismatchbetweenexchange-tradedfuturescontractcashflowsandtheinterestpaymentsdueinMarch. LoanTerms September20,1999December20,1999March20,2000 ∙Borrow$100millionat∙Payinterestforfirstthree∙Paybackprincipal September20LIBOR+200monthsplusint
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