You hedged your company's exposure to the GBP appreciation against the USD by entering one unit of
Question:
You hedged your company's exposure to the GBP appreciation against the USD by entering one unit of December GBPUSD foreign exchange futures contract (each GBPUSD futures contract with GBP 62,500) at the GBPUSD futures exchange rate of 1.1380 on September 25, with the GBPUSD spot exchange on that day at 1.1375. On October 5, you discovered that the December GBPUSD futures were quoted at 1.1330, and the spot rate for GBPUSD on that day was 1.1318. It is now October 6; you observe that the December GBPUSD futures are quoted at 1.1285, and the spot rate for GBPUSD is 1.1274.
a) What is your hedging position (to buy or to sell) using the GBPUSD futures?
b) Who may be your counterparty?
c) What is the total profit or loss on this futures position as of October 5?
d) If you deposited the required initial margin, which is $2,800, and had not touched the account or gotten any margin calls since making that cash deposit until October 5. The maintenance margin is $2,250. What was your margin account balance on October 5?
e) Given all the information from part d, what is the total cumulative profit or loss on this futures position as of October 6? What is your daily profit or loss on this futures position on October 6? What was your margin account balance on October 6 if you do not do anything on your margin account? What happens 3 to your margin account and futures position on October 6, and what must you do?
Advanced Accounting
ISBN: 978-0538480284
11th edition
Authors: Paul M. Fischer, William J. Tayler, Rita H. Cheng