Your business (US company) will pay out 600,000 British pounds in nine months. Y
ID: 2714908 • Letter: Y
Question
Your business (US company) will pay out 600,000 British pounds in nine months. You have decided to fully hedge your company’s foreign exchange risk with futures contracts. Futures contracts for British pounds have an initial margin of $1500 and a maintenance margin of $1100. You decide to use 30 futures contracts, each with 20,000 British pounds attached. You open your position on 12/1/2015. The following table shows the direct quote for British pounds.
12/1/2015
12/2/2015
12/3/2015
Futures Price
2.113 USD
2.1 USD
2.115 USD
1. Find your initial margin balance on the day you open your position.
2. Find your ending margin balance on 12/2. Assume deficits are eliminated to keep the position open and excesses remain in the account.
3.Find your ending margin balance on 12/3. Do not enter the dollar sign when you input your answer.
12/1/2015
12/2/2015
12/3/2015
Futures Price
2.113 USD
2.1 USD
2.115 USD
Explanation / Answer
Your business (US company) will pay out 600,000 British pounds in nine months. Y
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