What type of position in future contracts should be established?

How much money per contract do you expect to make?

 

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1.1 A portfolio manager controls $11.1 million in common stock. In anticipation of a stock market rise, the decision is made to increase the exposure to market risk using the S&P 500 futures contract. The portfolio’s beta is 1.25, and the current price of the S&P 500 futures contract selected is 1,422.80, each point of S&P500 is worth $250. Calculate the number of futures contracts that should be used to double the exposure (or make beta 2.5). What type of position in future contracts should be established?

 

1.2 Three months later you expect falling market and you want to decrease $7.6 mil portfolio in common stocks and beta to 1.8 to a conservative beta 0.95. You use the S&P 500 future contracts 1486.15. How many contracts do you need? What is the position you are going to establish?

 

2.1 Current level of S&P500 is 1,434.18, dividend yield is 1.1% and 3 months futures are priced at $1,438.6. You have 3 months T-bill at 3.1% to satisfy the margin requirements. What type of position in future contracts should be established?

How much money per contract do you expect to make?

 

2.2 Current level of S&P500 is 1,434.18, dividend yield is 1.1% and 3 months futures are priced at $1,472.36. You have 3 months T-bill at 3.1% to satisfy the margin requirements. What type of position in future contracts should be established?

How much money per contract do you expect to make?

 

3.1 The current exchange rate is £.4857 for one Canadian dollar. What is the 90; 180; 270 days forward rate if Canadian risk-free rate is 5.7% and the LIBOR is 2.1%?

 

3.2  Today the Bank of Canada quotes CAD 2.058884/ per British pound. The Canadian inflation rate is estimated at 4.34% for each quarter of the next year, while the Bank of England inflation estimate is given as 8.2 % per year. PPP holds and you estimate the forward exchange rate for 3 m; 6m and 9 months.

 

3.3 You have Canadian dollars and the exchange traded future contracts are priced according to Interest Rate Parity. You are sure that in one year the spot rate will be the same as forward rate estimated through the Purchasing Power Parity. What position do you recommend on one year future contract to exploit arbitrage (if it exists).

 

4.The current exchange rate is ¥108.29 per US $. The inflation rate in Japan is estimated at 2.2% per year and the forward rate 6 months rate at ¥107.229. What is the inflation rate in the US?

 

5.DJIA spot is 17, 812.19 and NASDAQ spot is 5, 102.81. Risk-free rate is 2.1%, Dividend yield of DJ is 1.3% and ND is 1.01%. You believe that NASDAQ will lose 0.5% and DJ will lose 1% in the next 180 days. Future contracts with 180 days until settlement are fairly priced. How much money you will make on a spread involving 1 contract of each? (Assume $250 a point).

 

6.You are looking for arbitrage opportunity. You found the following quotes at a dealership (no transaction costs; no bid ask spreads):

US 0.7517/per CAD

YTL 2.16/ per CAD

YTL 2.9177/per US

You have 1 mil CAD. Do you see arbitrage opportunity? How much can you make in one round (if any)?

What is the arbitrage-free Turkish lira per US dollar Spot rate

 

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