United States

Each contract controls 100,IEEE. You are receiving 418,IEEE in Euro revenues on September 9th. Assume that currently, the September 9th forward is $1. 2560. 5. How would you properly hedge the revenues using futures contracts? Discuss why, how much you will be over or under-hedged, and the risks. A. Buy 3 August Euro-futures contracts b. Sell 3 August Euro-futures contracts c. Sell 4 September Euro-futures contracts d. Buy 4 September Euro-futures contracts e. Sell 3 September Euro-futures contracts 6. If we properly hedge the above revenue, are we over-hedged or under- hedged, and what will cause the hedge to lose money?

Explain why. A. Over- hedged, an appreciation of the Euro relative to the forward b. Over-hedged, a depreciation of the Euro relative to the forward c. Under-hedged, an appreciation of the Euro relative to the forward d. Under-hedged, a depreciation of the Euro relative to the forward e. Nothing, the hedge will work perfectly 7. If on September 9th, the Bid and Ask are $1. 2490/E and $1. 2540/E, and the futures price is for the September 20 contract is $1. 2550, did your hedge work perfectly, or did you make or lose money on the hedge? A. Worked Perfectly (no gain or loss greater than $100) b. Profit < Sl 000 C. LOSS < 31000 .

Profit > $1000 e. Loss >$1000 8. Given the above results would we have been better off over-hedging or under-hedging? Retrospectively, (using the bid-ask and futures prices in problem 7) how many futures contracts should we have bought/sold to minimize gains and losses on the hedge (minimize hedge variance)? A. Under- hedging sell 3 contracts b. Under-hedging; buy 3 contracts c. Over-hedging; buy 5 contracts d. Over-hedging sell 5 contracts e. Over-hedging; sell 6 contracts 9. Suppose instead that the resulting bid and ask are $1. 2590/E and $1. 2610/ E, and the futures price is for the September 20 contract is $1. 20, (and you hedged using the proper number Of contracts-?problem 5) did your hedge work perfectly, or did you make or lose money on the hedge? A. Worked Perfectly (no gain or loss greater than SSL 00) b. Profit < $500 c. Loss $500 d. Profit > 5500 e. LOSS >$500 10. Retrospectively, how could you have minimized your gains or losses on the hedged position in problem g: under-hedging, or over-hedging? And if you wished to minimize hedge variance (the gains/losses) how many contracts should you have used? A. Under-hedging sell 3 contracts d. Over-hedging; sell 5 contracts 11. What is the purpose of hedging with futures? Cancel deviations in the spot on the closing date from the present spot b. Cancel deviations in the spot on the closing date from the forward for the closing date c. Minimize variance of the hedged position d. Two of the above e. All of the above 12. In theory, futures prices move perfectly with: a. Deviations in the spot rate from the current spot b. Deviations in the spot rate from the forward rate on contract maturity c. Deviations of the bombard rate for the maturity date of the contract d. Two of the above 13. How is hedging different when using futures vs.. Forwards? A.

Hedging with uterus, you take delivery of the underlying currency, therefore locking in the price of the currency b. Hedging with futures, you hold the contracts to expiration c. Hedging with futures, you offset gains or losses on the spot price for the currency with gains or losses on the futures position d. Two of the above 14. What is the Yield to Maturity of a five-year, Semi-Annual Euro denominated bond with a 2. 5% annual coupon, selling at 93% of par value? Show work. A. Appear 1% b. Appear 2% c. Appear 3 % d. Appear e. Appear 5% 15. If a similar US dollar denominated bond yielded 6. 0%, which bond has the higher yield after inflation?

Is the difference less than . 2%? Assume the current spot is $1. 2200/E and one-year forward is $1. 2450/E. Show work. A. US Bond, no b. US Bond, yes c. Euro Bond, no d. Euro Bond, yes e. Can’t tell, we can’t compute depreciation 16. Suppose annual inflation rates in the U. S. And Mexico are expected to be 6% and 20%, respectively, over the next several years.