a) Briefly explain the following terms:

i. Initial Margin (2 marks)

ii. Maintenance Margin (2 marks)

iii. Variation Margin (2 marks)

iv. ABC Company Ltd purchased 5000 cocoa futures contract at a price of $150

per contract. As part of the contract, ABC was required to deposit $10 per contract initially in their account with the maintenance margin set at $5 per contract. If the price per contract falls to $142 overnight, what action will the exchange require ABC to undertake? (9 Marks)

b) Emmanuella purchased a put option on British pounds for $.06 per unit. The strike price was $1.85, and the spot rate at the time the pound option was exercised was $1.69. Assume there are 31,250 units in a British pound option. What was Emmanuellas net profit on the option? (5 marks)

c) Caleb sold a put option on Canadian dollars for $.05 per unit. The strike price was $.85, and the spot rate at the time the option was exercised was $.92. Assume Caleb immediately sold off the Canadian dollars received when the option was exercised. Also assume that there are 50,000 units in a Canadian dollar option. What was Calebs net profit on the put option? (5 marks)

d) The value of the US Dollar today is GHS 6.1. Yesterday, the value of the US dollar was GHS 5.91. The Ghana Cedi ____ by ____%. (5 marks)

e) Assuming that existing U.S. one year interest rate is 8% and the Canadian one-year interest rate is 9%. Also assume that interest rate parity exists. Should the forward rate of the Canadian dollar exhibit a discount or a premium? If U.S. investors attempt covered interest arbitrage, what will be their return? If Canadian investors attempt covered interest arbitrage what will be their return? (5 marks