Question $2(20$ marks$)$

Use the following information for parts A to B$.$

An investor shorts one HSBC futures contract $(400$ shares per contract$)$ at the futures price of $$54$ per share when his account has $$1,800.$ The initial margin for the contract is $$1,800$ and the maintenance margin is $$1,200.$ The risk$-$free rate is $2\%$ and the inflation rate is $1\%.$

A$.$ Calculate the HSBC futures price that the investor will receive a margin call at$.$

$(4$ marks$)$

B$.$ Suppose the market price of HSBC stock is $$52$ per share on the futures contract expiry date. Calculate the investor's profit$/$loss on the futures contract. $(4$ marks$)$

Use the following information for parts $C$ to $D.$

C$.$ The spot price of Platinum is USD$900$ per ounce. The risk$-$free rate is $3\%$ p$.$a$.$ and assume you can lend and borrow any amount of money at risk$-$free rate. Calculate the $6-$month futures price of Platinum using the spot$-$futures parity.

$(4$ marks$)$

$2$

D$.$ Further to part C$,$ suppose the $6-$month futures contract of Platinum is trading at $$930$ in the market. Explain what should you do to make arbitrage profit from the situation. Calculate the arbitrage profit you can make.

$(8$ marks$)$