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Derivatives and Risk Managment (MSCFIND1)

Derivatives and Risk Managment (MSCFIND1)

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Suppose that the standard deviation of monthly changes in the price of commodity A is $2. The standard deviation of monthly changes in a futures price for a contract on commodity B (which is similar to commodity A) is $3. The correlation between the futures price and the commodity price is 0.9. What hedge ratio should be used when hedging a one month exposure to the price of commodity A?

exchange rate is 0.7000 and the six-month domestic and foreign risk-free

interest rates are 5% and 7% (both expressed with continuous compounding). What

is the six-month forward rate?

0.7249

You sell one December futures contracts when the futures price is $1,010 per unit. Each contract is on 100 units and the initial margin per contract that you provide is $2,000. The maintenance margin per contract is $1,500. During the next day the futures price rises to $1,012 per unit. What is the balance of your margin account at the end of the day?

The price of a stock on February 1 is $62. A trader sells 100 put options on the stock with a strike price of $60 when the option price is $2.5. The options are exercised when the stock price is $55. The trader’s net profit or loss is

A company enters into a long futures contract to buy 2,000 units of a commodity for $120 per unit. The initial margin is $12,000 and the maintenance margin is $8,000. What futures price will allow $4,000 to be withdrawn from the margin account?

On March 1 the spot price of a commodity is $60 and its August futures price is $59. On July 1 the spot price is $64 and the August futures price is $63.50. A company entered into futures contracts on March 1 to hedge its purchase of the commodity on July 1. It closed out its position on July 1. What is the effective price (after taking account of hedging) paid by the company?

A company

can invest funds for five years at

floating

reference rate

minus 30 basis points. The five-year

swap rate is 3%. What fixed rate of interest can the company earn by using the

swap?

3.0%

❌

3.3%

2.7%

2.4%

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The spot price of an asset is $30 and the risk-free rate

for all maturities is 10% with continuous compounding. The asset provides an

income of $2 at the end of the first year and at the end of the second year.

What is the three-year forward price?

$19.67

$40.50

$35.84

$45.15

View this question

A speculator can choose between buying 50 shares of a stock for $20 per share and buying 500 European call options on the stock with a strike price of $22.5 for $2 per option. For second alternative to give a better outcome at the option maturity, the stock price must be above

A short

forward contract that was negotiated some time ago will expire in three months

and has a delivery price of $40. The current forward price for three-month