Question

No excel please. Use the following information to answer the next three questions Today, a Spanish organization hedged a receipt of Canadian dollars by creating a portfolio consisting of five Canadian dollar futures contracts that mature three days from today. Each contract has 125,000 Canadian dollars attached. The futures price today is €1.225/C$. Assume that the initial margin and maintenance margin is €1500 and €1100 per contract, respectively. The closing futures prices over the next three days (days 1-3), in order, are as follows: €1.230, €1.227, and €1.228. How much money will the company need (in euros) to open its futures contract position? Do not use currency symbols when entering your answer.

ii)Find the company's ending margin balance (in euros) at the end of day 1. Assume any deficits are eliminated to keep the account open and any excess funds remain in the account. Round intermediate steps to four decimals and your final answer to two decimals. Do not use currency symbols or words when entering your response.

iii)Find the company's ending margin balance on at the end of day 3. (Assume any deficits are eliminated to keep the account open and any excess funds remain in the account.)

9375 6750 8750 7375 none of the above

Answer 1

	The position is a short position in the futures market.
i)	Amount needed to open the futures contracts = 3*1500 =	€          4,500.00
ii)	Contract value at the beginning of Day 1 = 125000*3*1.225 =	€    4,59,375.00
	Contract value at the end of the Day 1 = 125000*3*1.230 =	€    4,61,250.00
	Balance in the account at the end of Day 1 = 4500+459375-461250 =	€          2,625.00
	Amount to be remitted (as balance is less than maintenance margin of E3300) = 4500-2625 =	€          1,875.00
	Balance in margin account at the end of Day 1	€          4,500.00
iii)	Contract value at the end of Day 2 = 125000*3*1.227 =	€    4,60,125.00
	Balance in the account at the end of Day 2 = 4500+461250-460125 =	€          5,625.00
	Contract value at the end of Day 3 = 125000*3*1.228 =	€    4,60,500.00
	Balance in the account at the end of Day 3 = 5625+460125-460500 =	€          5,250.00
	Answer: None of the above