"Has been a lifesaver so many times!"
- Catherine Rampell, student @ University of Washington
"Exactly the help I needed."
- Jennifer Hawes, student @ San Jose State
"The best place for brainstorming ideas."
- Michael Majchrowicz, student @ University of Kentucky
1.Your company buys, sells, and stores warehouses full of gold. Today, the The Sp 2 index eguals the sume of stock prices for companies A& Z today: pa=37.pz=78
futures price for gold with delivery in one year is $360 per ounce. The spot price
is $370 per ounce. Your company is able to invest and borrow at the riskfree
interest rate of 6.6%. Furthermore, your company can, if necessary, store and
safeguard an additional 1000 ounces of gold for virtually free. Which statement
about the present value of arbitrage profits on 1000 ounces of gold is correct?
2. Awhile ago futures contracts for crawdads (1500 lbs. per contract) traded at a
futures price of $5.00 per lb. Today the futures price is $5.50 . The margin on
the contract is 1.25%. For an investor that was long one contract during this
period, what is the rate of return?
3. Today is Jan. 2, 2525, and the Company plans on harvesting 40,000 bushels
of soybeans in October at the local market. Currently, soybeans cost $4.00 /bu
in the local cash market, and $4.10 in the futures market for November delivery.
The Company today enters an appropriate position on 5 of these futures
contracts (8,000 bu. each). The Company intends to close the futures position in
October, settle in cash, and use the cash flows from the futures market to hedge
movements in soybean prices at the local market. In October, the Company
delivers 40,000 bushels in the local market for the cash price of $5.20 . Also in
October, the Company closes its futures position on the November contracts at a
futures price of $5.30 . Which statement about this hedging activity is correct?
4. Suppose a company in the USA has a chance to buy its product
internationally for either (i) 33600 rupees or (ii) 28200 pesos. Shipping and other
costs are identical. The company will exchange its USD into foreign currency at
current exchange rates: 1 USD = 6.10 rupees , and 1 USD = 7.87 pesos .
Which statement is most accurate?
5. The company requires revenue of $150,000 USD on this particular export sale
in order to cover costs and fair profit. The company accepts payment in the
purchaser’s local currency, which is rupee. Today’s spot rate is that 1 USD =
9.20 rupee. Suppose the company makes a bid in rupee to sell the product such
that at today’s spot rate the required revenue is obtained. The purchaser agrees
to pay the bid. Several weeks later at time of delivery the purchaser makes the
agreed upon payment in rupee. By that time, however, the rupee appreciates
3% relative to the USD. How much does the company receive in USD from the
6. A futures contract provides the opportunity to lock-in the exchange rate at
which you can buy or sell 200,000 peso . The futures price, quoted in U.S. cents
per peso, currently is 94.10 . The margin requirement is 1.75%. You enter long
on one contract. Thereafter, the peso appreciates 6% relative to the USD. You
then close your futures position. What was your profit (loss)?
7. The Company hopes to win a job for delivering its product to an overseas
client. The Company must submit a bid to the client stating the cost of the job,
and the client decides whether or not to hire the Company. The Company
estimates they can produce the product over the next few months at a pretax
cost of $80,000 ; their target pretax profit margin (= Pretax profit ÷ Sales revenue
) for this job is 17%. The Company is willing to accept payment from the client in
foreign currency (krone). The spot exchange rate today is 1 USD = 0.8700
krone. The company makes a bid, in krone, such that if exchange rates remain
constant the company gets the target pretax profit margin. The client agrees to
pay the Company its requested bid, but by the time the Company receives the
payment, the krone has depreciated by 20 percent relative to the dollar. How
much is the actual pretax profit in USD?
8. Company shares have a current market price of $47.40 . A call option on
the shares has a strike of $45 and a time value of $6.40 . If at expiry the
percentage change in shareprice is -6%, what is the rate of return on the call
9. Today is Jan. 2, 2525, and the Company expects to receive from an
international subsidiary 2,000 krone in 3 months. The Company intends to
exchange the krone at the local bank.
View Full Essay
Financial markets, Stock market, Financial accounting, Financial ratios, Shareholders, Futures contract, Dividend, Rate of return, Yield, Investment, Fundamental analysis, Short
More Free Essays Like This