Question 1 On January 2, a Canadian automobile dealer decided to import 1500 cars from Japan...

Transcribed Image Text:

Question 1 On January 2, a Canadian automobile dealer decided to import 1500 cars from Japan at a cost of 2.5 million Yen per car. The cars will arrive on April 30 at which time payment for the cars will be due. The dealer also decided to use June forward contracts (maturing June 30) to hedge the CAD/YEN exchange rate. On January 2, the June forward rate was $0.010835 and on April 30, when the hedge is closed out, the spot rate for the Yen was $0.01102 If the interest rate in Canada is 5% and in Japan is 1%, determine how many contracts the dealer used to hedge and what the effective amount was that the dealer paid in Canadian dollars (Assume the contract size for the forward contract is 12,500,000 Yen). (7 points) Question 2 Alan "bought" a futures contract on a commodity on the New York Commodity Exchange on June 1. The futures price was USD 500 per unit and the contract size was 100 units per contract. Alan set up a margin account with initial margin of USD 2,000 per contract and maintenance margin of USD 1000 per contract. The futures price of the commodity varied as shown below. Fill in the table below and therefore determine the balance in Alan's margin account at the end of June 5 (6 points) Day End June 1 June 2 June 3 June 4 June 5 Futures Daily Price $ Gain/Loss 492.70 497.30 492.70 484.20 471.70 468.80 Cum Margin Gain/Loss Acet Bal. Margin Call? Variation Margin Question 1 On January 2, a Canadian automobile dealer decided to import 1500 cars from Japan at a cost of 2.5 million Yen per car. The cars will arrive on April 30 at which time payment for the cars will be due. The dealer also decided to use June forward contracts (maturing June 30) to hedge the CAD/YEN exchange rate. On January 2, the June forward rate was $0.010835 and on April 30, when the hedge is closed out, the spot rate for the Yen was $0.01102 If the interest rate in Canada is 5% and in Japan is 1%, determine how many contracts the dealer used to hedge and what the effective amount was that the dealer paid in Canadian dollars (Assume the contract size for the forward contract is 12,500,000 Yen). (7 points) Question 2 Alan "bought" a futures contract on a commodity on the New York Commodity Exchange on June 1. The futures price was USD 500 per unit and the contract size was 100 units per contract. Alan set up a margin account with initial margin of USD 2,000 per contract and maintenance margin of USD 1000 per contract. The futures price of the commodity varied as shown below. Fill in the table below and therefore determine the balance in Alan's margin account at the end of June 5 (6 points) Day End June 1 June 2 June 3 June 4 June 5 Futures Daily Price $ Gain/Loss 492.70 497.30 492.70 484.20 471.70 468.80 Cum Margin Gain/Loss Acet Bal. Margin Call? Variation Margin

Answer rating: 100% (QA)

PA... View the full answer