Financial Risk Management

Financial Risk Management, FIN3FRM Semester 2, 2012 Assignment 1 08/08/2012 Question 1 (a) The investor sells 100,000 pounds for $1.9000 per pound when the securities industry place switch rate is however $1.8900 per pound. 1.9000 $/£ - 1.89000 $/£ = 0.01 $/£ thusly the investor entrust elaboration boodle of 0.01 $/£ from the difference of the substitution rate. The gain is £100,000 0.01$/£ = $1,000 (b) The investor sells 100,000 pounds for $1.9000 per pound when the market exchange rate is $1.9200 per pound. 1.9000 $/£ - 1.92000 $/£ = -0.02 $/£ whence the investor will suffer a loss of 0.02 $/£ from the difference of the exchange rate. The loss is £100,000 0.02$/£ = $2,000 Question 2 The follow meshing is centre sales (Future wrong Closing scathe) Therefore total lettuce is 40,000 pounds ($0.9120/pound - $0.8830/pound) = $1,160 40,000 (0.9120-0.8880) = $960 is generated among October 2009 and D ecember 31 2009. And 40,000 (0.8880-0.8830) = $200 is generated between January 1, 2010 and January 21, 2010. Therefore, (a) If the stuff is a hedger, the accounting profit in 2010 is $0 and $1,160 in 2011 and will be taxed on the whole profit generated in 2009. (b) If the shorten is a speculator, $960 will be taxed in 2010 and $200 in 2010. Question 3 =0.8, =0.65, =0.

81, and Therefore the best hedge ratio is 0.8 (0.65/0.81) = 0.642 This means that the size of the futures nonplus should be 64.2% of the size of the companys exposure in a 3-month hedge. Question 4 (a) = $40, r = 0.1, T = 1, and Therefore, The forward price is $44.2! 1, and the initial value is zero. (b) = $40, r = 0.1, T = 1, and F0 = = $45, K = $44.21, r = 0.1, T = 0.5, and The forward price is $47.31 and the value of the forward contract is $2.95. Question 5 c = 0.1, y = 0.04, T = 4/12, and Therefore, F0 = The unquestionable futures price is only 405. This shows that the index futures price is...If you require to sign a full essay, order it on our website: BestEssayCheap.com

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