Futures Contract and Exchange Rate
1 The three year zero rate is 7% per annum and the four year zero rate is 7.5% pa (both continuously compounded). What is the one year (continuously compounded) forward rate starting in three years’ time?
(2 marks) With the formula with continuously compounded,
=
=0.09 =9% The one year forward rate starting in three years’ time is 9%
1. The zero rate curve is flat at 6% pa with semi-annual compounding. What is the value of a FRA where the holder receives interest at the rate of 8% per annum with semi-annual compounding for a six month period on a principle of $1000 starting in 2 years?
(2 marks)
(conversion Forumulas) In this case, it will use to calculate the Rc to find out the FRA,
= 5.91%
The value of FRA is: L(
When =2.5,
FRA= 1000(0.08-0.06) (0.5
=8.626
2. The margin requirement on the S&P/ASX 200 futures contract is 10% and the stock index is currently 4400. Each contract has a multiplier of $25. How much margin must be put up for each contract sold? If the futures price falls by 1% to 4356, what will happen to the margin account of an investor who holds one contract? What will the investor’s percentage return based on the amount put up as margin be? The value of margin must be put up for each contract sold: 4400 x 25 x 10% =$11000
When the futures price fall 1% to 4356, it presents that the stock index decreased 44 (which 4400 – 4356 =44). As the loss of each contract is : 44 x 25 = $1100
The percentage of the investor loss in margin account : = -10%
And the cash in margin account will decrease to 9900 (which is 11000-1100).
3. The S&P/ASX 200 index is currently at 4000. You manage a $4 million indexed equity portfolio. The S&P/ASX 200 futures contract has a multiplier of $25.
a) If you are temporarily bearish on the stock market, how many contracts should you sell to fully eliminate your exposure over the next six months?
The total cost of S&P/ASX 200 index with $25 multiplier is : 4000 x 25 = 100000
(2 marks) With the formula with continuously compounded,
=
=0.09 =9% The one year forward rate starting in three years’ time is 9%
1. The zero rate curve is flat at 6% pa with semi-annual compounding. What is the value of a FRA where the holder receives interest at the rate of 8% per annum with semi-annual compounding for a six month period on a principle of $1000 starting in 2 years?
(2 marks)
(conversion Forumulas) In this case, it will use to calculate the Rc to find out the FRA,
= 5.91%
The value of FRA is: L(
When =2.5,
FRA= 1000(0.08-0.06) (0.5
=8.626
2. The margin requirement on the S&P/ASX 200 futures contract is 10% and the stock index is currently 4400. Each contract has a multiplier of $25. How much margin must be put up for each contract sold? If the futures price falls by 1% to 4356, what will happen to the margin account of an investor who holds one contract? What will the investor’s percentage return based on the amount put up as margin be? The value of margin must be put up for each contract sold: 4400 x 25 x 10% =$11000
When the futures price fall 1% to 4356, it presents that the stock index decreased 44 (which 4400 – 4356 =44). As the loss of each contract is : 44 x 25 = $1100
The percentage of the investor loss in margin account : = -10%
And the cash in margin account will decrease to 9900 (which is 11000-1100).
3. The S&P/ASX 200 index is currently at 4000. You manage a $4 million indexed equity portfolio. The S&P/ASX 200 futures contract has a multiplier of $25.
a) If you are temporarily bearish on the stock market, how many contracts should you sell to fully eliminate your exposure over the next six months?
The total cost of S&P/ASX 200 index with $25 multiplier is : 4000 x 25 = 100000