You are the financial risk manager for a firm. You have the following issues to resolve. You
Question:
You are the financial risk manager for a firm. You have the following issues to resolve.
You are in a short futures contract to sell 5,000 bushels of wheat for 450 cents per bushel. The initial margin was $3,000 and the maintenance margin is $2,000. You need to determine at what price would force a margin call.
You are currently paying LIBOR +0.3% in debt payments. It is possible to get a financial intermediary willing to enter a swap. The intermediary wants to get at least 0.03% and the counterparty is currently paying a fixed rate of 5.2%.
You have an asset that pays 4.7% that you wish to transform into a floating rate. You know of a counter party currently receiving LIBOR -0.3%. Any deal would need to be agreed to by both parties.
You see that three put options on a stock with strike prices of $55, $60, and $65 are $3, $5, and $8, respectively. You have the ability to use those options to create a butterfly spread.
Your company has just discovered a gold deposit. It will take 6 months to begin the mining operation and it will extract continuously for 5 years. Futures contracts on gold are available with delivery every 2 months. Discuss how the futures markets can be used for hedging.