1. Using the Futures quotations in WSJ on February 5, 2018. Note that the June 2
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Question
1. Using the Futures quotations in WSJ on February 5, 2018. Note that the June 2018 Euro futures contract has a price of $1.3530 per euro. You believe the spot price in June will be $1.3680 per euro.
a. What speculative position would you enter into to attempt to profit from your beliefs?
b. Calculate your anticipated profits, assuming you take a position in one contract (1 contract size is 125,000 units).
c. What is the size of your profit (loss) if the future price is indeed an unbiased predictor of the future spot price and this price materializes?
2. Do problem 1 again assuming you believe the June 2018 spot price will be $1.3177 per euro.
a. What speculative position would you enter into to attempt to profit from your beliefs?
b. Calculate your anticipated profits, assuming you take a position in one contract (1 contract size is 125,000 units).
Look at the Currency Futures sheet from WSJ on February 5, 2015). Your focus is to look at the 5th column titled "Settle": here is an example on euro: Euro (CME) 125,000 (per contract), S per (S) High 1.3658 1.3673 Open March 1.3654 June 1.3656 low 1.3509 1.3524 Settle 1.3523 1.3530 chg open interest .0142 241,944 .0141 2,529Explanation / Answer
Solution:
1.a. I would buy June futures as I am bearish on the currency futures.
b. Anticipated profit = €125,000 * (1.368 – 1.353) = €1,875
2.a. I will short 1 contract of June futures for $1.3530 per Euro as I am bearish on the currency.
b. Anticipated Profit = €125,000 * (1.3530 – 1.3177) = €4,142.50
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