Question

On March 1 a commodity's spot price is $60 and its August futures price is $59. On July 1 the spot price is $64 and the August futures price is $63.50. A company entered into futures contracts on March 1 to hedge its purchase of the commodity on July 1. It closed out its position on July 1. What is the effective price (after taking account of hedging) paid by the company?

63.50

61.50

59.50

60.50

The spot exchange rate is 0.7000 AUD/USD and the Australian and US risk-free interest rates are 5% and 7% per annum (continuous compounded), respectively. What is the six-month forward exchange rate?

Group of answer choices

0.6930 AUD/USD

0.7070 AUD/USD

0.7177 AUD/USD

0.7249 AUD/USD

Which of the following statements is most accurate?

Group of answer choices

A stop-limit buy order with stop price $0.07 and limit price $0.1 will be executed at $0.1 or above.

A stop-limit buy order with stop price $0.07 and limit price $0.1 will become a limit buy order at $0.1 when price level $0.07 is reached.

A stop-limit buy order with stop price $0.07 and limit price $0.1 will be executed at $0.07 or above.

A stop-limit buy order with stop price $0.07 and limit price $0.1 will become a stop order at $0.07 when price level $0.1 or less is reached.

Answer 1

1.

c.$59.50.

Explanation:

According to the scenario, the computation of the given data are as follows:

Gain on future price = After future price - before future price

$63.50 - $59

= $4.50

So, we can calculate the effective price paid by the company by using following formula:

Effective price paid = Spot price in July - Gain on future price

= $64 - $4.50

= $59.50

2.

a) 0.693

Forward Rate = Spot Rate * e^(Domestic Rate - Foreign Rate) * Domestic Rate

= 0.7 * e^((0.05 - 0.07) * 0.05)

  

Forward Rate = 0.7 * 0.99

Forward Rate = 0.693

3.

a. A stop-limit buy order with stop price $0.07 and limit price $0.1 will be executed at $0.1 or above.