1.  Assume today’s settlement price on a CME DM futures contract is $0.6080/DM.  You have a short position in one contract.  Your margin account currently has a balance of $1,700.  The next three days’ settlement prices are $0.6066, $0.6073, and $0.5989.  Calculate the changes in the margin account from daily marking-to-market and the balance of the margin account after the third day.

2.  Do problem 1 over again assuming you have a long position in the futures contract.

 3.  Using the quotations in Exhibit 9.3, calculate the face value of the open interest in the December 1999 Swiss franc futures contract.

4.  Using the quotation in Exhibit 9.3, note that the March 2000 Mexican peso futures contract has a price of $0.11695.  You believe the spot price in March will be $0.09550.  What speculative position would you enter into to attempt to profit from your beliefs?  Calculate your anticipated profits assuming you take a position in three contracts.  What is the size of your profit (loss) if the futures price is indeed an unbiased  predictor of the future spot price and this price materializes?

5.  Do problem 4 over again assuming you believe the March 2000 spot price will be $0.08500.

6.  Recall the forward rate agreement (FRA) example in Chapter 6.  Show how the bank can alternatively use a position in Eurodollar futures contracts to hedge the interest rate risk created by the maturity mismatch it has with the $3,000,000 six-month Eurodollar deposit and rollover Eurocredit position indexed to three-month LIBOR.  Assume the bank can take a position in Eurodollar futures contracts maturing in three months’ time that have a futures price of 94.00.

7.  Use the quotations in Exhibit 9.6 to calculate the intrinsic value and the time value of the 80 ½ September Japanese yen American put options.

8.  Assume spot Swiss franc is $0.7000 and the six-month forward rate is $0.6950.  What is the minimum price that a six-month American call option with a striking price of $0.6800 should sell for in a rational market?  Assume the annualized six-month Eurodollar rate is 3 ½ percent.

9.  Do problem 8 over again assuming an American put option instead of a call option

10.  Use the European option pricing models developed in the chapter to value the call of problem 8 and the put of problem 9.  Assume the annualized volatility of the Swiss franc is 14.2 percent. 

11. Use the binomial option-pricing model developed in the chapter to value the call of problem 8.  The volatility of the Swiss franc is 14.2 percent.