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Currency Futures Position Valuation

Amber McClain sold eight June futures contracts each worth 500,000 pesos at the closing price. The document calculates the value of Amber's position at three different ending spot rates to determine her profit or loss. If the spot rate is lower than the futures price, she makes a profit, and if it is higher than the futures price, she realizes a loss.

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Ayushi
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15 views1 page

Currency Futures Position Valuation

Amber McClain sold eight June futures contracts each worth 500,000 pesos at the closing price. The document calculates the value of Amber's position at three different ending spot rates to determine her profit or loss. If the spot rate is lower than the futures price, she makes a profit, and if it is higher than the futures price, she realizes a loss.

Uploaded by

Ayushi
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLS, PDF, TXT or read online on Scribd

Problem 7.

1 Amber McClain

Amber McClain, the currency speculator we met earlier in the chapter,sells eight June futures contracts for
500,000 pesos at the closing price quoted in Exhibit 7.1.

a. What is the value of her position at maturity if the ending spot rate is $0.12000/Ps?
b. What is the value of her position at maturity if the ending spot rate is $0.09800/Ps?
c. What is the value of her position at maturity if the ending spot rate is $0.11000/Ps?

a. b. c.
Assumptions Values Values Values
Number of pesos per futures contract 500,000 500,000 500,000
Number of contracts 8.00 8.00 8.00
Buy or sell the peso futures? Sell Sell Sell

Ending spot rate ($/peso) $0.12000 $0.09800 $0.11000


June futures settle price from Exh7.1 ($/peso) $0.10773 $0.10773 $0.10773
Spot - Futures $0.01227 ($0.00973) $0.00227

Value of total position at maturity (US$) ($49,080.00) $38,920.00 ($9,080.00)


Value = - Notional x (Spot - Futures) x 8

Interpretation
Amber buys at the spot price and sells at the futures price.
If the futures price is greater than the ending spot price, she makes a profit.

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