FIN 449/MGMT 590


1- A company takes the long position in a futures contract for British Pounds. The settlement price at the time of entering the contract was 1.5885 [USD/GBP] and the contract calls for the delivery of 62,500 [GBP]. The initial margin is $3,600 and the maintenance margin $2400. The table presents the evolution of the settlement price sampled every week. Show the evolution of the margin account and the gains or losses of the contract.


2- Suppose you will receive 625,000 [GBP] in March 2019. Decide if the cheapest alternative is to enter into a futures contract, do nothing, or buy an option with strike price 1.30 [USD/GBP]. Use two years’ worth of daily data to calculate the probability distribution for GBP. The futures contract data is found in the CME website, options in NASDAQ, and exchange rates in FRED.

3- Set a 4 year currency swap for companies A and B. Company B wants to issue debt in Germany, in Euros, while company A wants to issue debt in the U.S., in Dollars. The interest rates they can get are:


The exchange rate at the beginning is 1.1100 [USD/EUR], rebalance the swap is the exchange rate at the end of year 2 is 1.1438 [USD/EUR]. Use a nominal of 1,000 [EUR], model the swap as an exchange of bonds sold at par.


Print the exam and your answers, also print the supporting data which is: