Futures contract problems and solutions

Which of the following is a major difference between swaps and futures contracts? Swaps are usually marked to market, whereas futures contracts are not. Swaps are typically short term, whereas futures contracts tend to extend over several years. The assets often traded in futures contracts include commodities, stocks, and bonds. Grain, precious metals, electricity, oil, beef, orange juice, and natural gas are traditional examples of commodities, but foreign currencies, emissions credits, bandwidth, and certain financial instruments are also part of today's commodity markets. Assume perfect markets: no transaction costs and no constraints. The one-month risk-free interest rate will remain constant over a six-month period. Two futures contracts are traded on a flnancial asset without payouts: a three-month (futures price F(t;t + 3)) and a six-month (futures price F(t;t+6)) contract.

where F0 is the futures price (today), S0 is the stock price (index level) today, T is the maturity of the contract [This is also sometimes written: F0 = S0(1 + rf ) T - D where D is the total cash dividend on the index.] • Violations of parity imply arbitrage profits. In this paper an alternative form of futures contract is proposed. the contract never expires and can be used for long‐term hedging without the need for rolling‐over into a new contract. the contract is shown to be equivalent to a portfolio of conventional futures contracts of differing maturities. at the risk-free rate. For the purposes of this problem, assume that a futures contract is the same as a forward contract. 3.21. When a known cash outflow in a foreign currency is hedged by a company using a forward contract, there is no foreign exchange risk. When it is hedged using futures contracts, the marking to market process does leave the company exposed to some risk. Which of the following is a major difference between swaps and futures contracts? Swaps are usually marked to market, whereas futures contracts are not. Swaps are typically short term, whereas futures contracts tend to extend over several years. The assets often traded in futures contracts include commodities, stocks, and bonds. Grain, precious metals, electricity, oil, beef, orange juice, and natural gas are traditional examples of commodities, but foreign currencies, emissions credits, bandwidth, and certain financial instruments are also part of today's commodity markets. Assume perfect markets: no transaction costs and no constraints. The one-month risk-free interest rate will remain constant over a six-month period. Two futures contracts are traded on a flnancial asset without payouts: a three-month (futures price F(t;t + 3)) and a six-month (futures price F(t;t+6)) contract. Problem 3.16. The standard deviation of monthly changes in the spot price of live cattle is (in cents per pound) 1.2. The standard deviation of monthly changes in the futures price of live cattle for the closest contract is 1.4. The correlation between the futures price changes and the spot price changes is 0.7.

In finance, a futures contract (more colloquially, futures) is a standardized legal agreement to buy or sell something at a predetermined price at a specified time 

Solutions to Practice Questions (Forwards and Futures) 1. These practice questions are a suplement to the problem sets, and are intended for those of you who want more practice. They are Optional, and are not part of the required material. Each contract is for the delivery of 15,000 pounds. The current futures price is 160 cents per pound; the initial margin is $6,000 per contract; and the maintenance margin is $4,500 per contract. Do problem 1 again assuming you have a long position in the futures contract. Solution: $1,700 + [($1.3126 - $1.3140) + ($1.3133 - $1.3126) + ($1.3049 - $1.3133)] x EUR125,000 = $562.50, Futures Contract Definition: A “Futures Contract is an agreement between two anonymous market participants”, a seller and a buyer. Here, the seller undertakes to deliver a standardized quantity of a particular financial instrument (or a commodity) at a certain price and a specified future date. What is the futures price for a contract deliverable on December 31, 1992? 3.15. Suppose that the risk-free interest rate is 10% per annum with continuous compounding and the dividend yield on a stock index is 4% per annum. The index is standing at 400 and the futures price for a contract deliverable in 4 months is 405. 1. Forward and Futures Prices A forward contact and a futures contract on silver are both one day to ma- turity. Suppose the futures price is $7.00/ounce but the forward price is $6.90/ounce. Assume the spot price tomorrow will be either $6.85 or $7.05. Assume futures have cash settlement.

When a trader enters into a short forward. contract, she is agreeing to sell the underlying asset for a certain price at a certain time in. the future. Problem 1.2.

Problem 3.16. The standard deviation of monthly changes in the spot price of live cattle is (in cents per pound) 1.2. The standard deviation of monthly changes in the futures price of live cattle for the closest contract is 1.4. The correlation between the futures price changes and the spot price changes is 0.7.

Problem 1.3. What is the difference between entering into a long forward contract when the forward price. is $50 and taking a long position in a 

Options, Futures, and Derivative Securities, FIN 451. Philip H. Dybvig will present a session on reading financial screens and looking up contract specifications. Are you prepared for the exam? I suggest working the practice problems (and checking your answers against the solutions provided) to help to make sure there are not any gaps in Future contract: A future contract is an agreement entered into by two parties where they decide to buy or sell an asset at a specified price on a specified date in future. Forward contract: A forward contract is a right given to the buyer of the contract to buy or sell the asset at a specified price on a specified date in future. This happens if the futures price of frozen orange juice falls by more than 10 cents to below 150 cents per pound. $2,000 can be withdrawn from the margin account if there is a gain on one contract of $1,000. This will happen if the futures price rises by 6.67 cents to 166.67 cents per pound. Problem 2.12. However, while close-out of the futures contract leaves the investor with no net obligations, offset of a forward contract leaves the investor with obligations on both contracts. 17. An investor enters into a long position in 10 silver futures contracts at a futures price of $4.52/oz and closes out the position at a price of $4.46/oz. A futures contract is a legal agreement to buy or sell a particular commodity or asset at a predetermined price at a specified time in the future. Futures contracts are standardized for quality and quantity to facilitate trading on a futures exchange.

Each contract is for the delivery of 15,000 pounds. The current futures price is 160 cents per pound; the initial margin is $6,000 per contract; and the maintenance margin is $4,500 per contract.

1. Forward and Futures Prices A forward contact and a futures contract on silver are both one day to ma- turity. Suppose the futures price is $7.00/ounce but the forward price is $6.90/ounce. Assume the spot price tomorrow will be either $6.85 or $7.05. Assume futures have cash settlement. Options, Futures, and Derivative Securities, FIN 451. Philip H. Dybvig will present a session on reading financial screens and looking up contract specifications. Are you prepared for the exam? I suggest working the practice problems (and checking your answers against the solutions provided) to help to make sure there are not any gaps in Future contract: A future contract is an agreement entered into by two parties where they decide to buy or sell an asset at a specified price on a specified date in future. Forward contract: A forward contract is a right given to the buyer of the contract to buy or sell the asset at a specified price on a specified date in future. This happens if the futures price of frozen orange juice falls by more than 10 cents to below 150 cents per pound. $2,000 can be withdrawn from the margin account if there is a gain on one contract of $1,000. This will happen if the futures price rises by 6.67 cents to 166.67 cents per pound. Problem 2.12. However, while close-out of the futures contract leaves the investor with no net obligations, offset of a forward contract leaves the investor with obligations on both contracts. 17. An investor enters into a long position in 10 silver futures contracts at a futures price of $4.52/oz and closes out the position at a price of $4.46/oz.

varying flexibility structure as against a forward contract; swaps, which like The problem is, however, not limited to how much cash a farmer receives for domestically or internationally, and policies that used market-based solutions for   25 Feb 2014 Futures – Financial Futures Contracts – Types of Financial Futures Contract – The problem is not derivatives but the perverse incentive banks have under the Solution. Investor should buy 100 put option contract with a  The seller in the futures contracts is said to be having short position or simply short. The underlying asset in a futures contract could be commodities, stocks,  1 Jan 2015 Three elements appear to determine whether a futures contract In 1848, the solution was the formation of an exchange: the Chicago following two characteristics across time: a practical approach to problem-solving and a.