Economics Homework Help
UM The Portfolio Manager Finance Use Futures Contract Question
Prior to beginning work on this assignment, review chapters 1, 2 and 3 in the textbook Sundaram, R. K., & Das, S. R. (2016). Derivatives: Principles and practice (2nd ed.), and watch the videos https://www.khanacademy.org/economics-finance-domain/core-finance/derivative-securities/put-call-options/v/american-call-options,
I need some assistance answering 5 short answer questions with all of the provided questions in a Word document, being sure to explain the answers at very detailed length and show your work if required. The assignment should have at least 5 references including the textbook at least one video as a mandatory reference and the other three references may be videos as well as other academic journals or scholarly articles. The assignment should also have an originality score of 20% or less.
1. Assume a firm has a portfolio that contains stocks that track the market index. The firm now wants to change this portfolio to be 20% in commodities and only 80% in the market index. How would the firm use derivatives to implement this strategy?
2. Assume a firm has a portfolio that contains stocks that track the market index. The firm now wants to change this portfolio to be 20% in commodities and only 80% in the market index. How would the firm use derivatives to implement this strategy without using futures contracts?
3. A firm enters into a long position in 10 silver futures contracts at a futures price of $4.52/oz., and closes out the position at a price of $4.46/oz. If one silver futures contract is for 5,000 ounces, what are the investor’s gains or losses?
4. A firm enters into a short futures position in 10 contracts in gold at a futures price of $276.50 per oz. The size of one futures contract is 100 oz. The initial margin per contract is $1,500, and the maintenance margin is $1,100.
(a) What is the initial size of the margin account?
(b) Suppose the futures settlement price on the first day is $278.00 per oz. What is the new balance in the margin account? Does a margin call occur? If so, assume that the account is topped back to its original level.
(c) The futures settlement price on the second day is $281.00 per oz. What is the new balance in the margin account? Does a margin call occur? If so, assume that the account is topped back to its original level.
(d) On the third day, the investor closes out the short position at a futures price of $276.00. What is the final balance in his margin account?
(e) Ignoring interest costs, what are his total gains or losses?
5. The 181-day interest rate in the US is 4.50% and that on euros is 5%, both quoted using the money-market convention. What is the 181-day forward price of the euro in terms of the spot exchange rate S? Assume a spot price of S euros per dollar.
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