国际财务管理课后习题答案chapter 7.docx
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国际财务管理课后习题答案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〈E(E〈St)thecall(put)optionistradingout-of—the—money。
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+200monthsplusinterest
basispo
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