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    Finanzas Internacionales: Ejercicios de La Tarea 3

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    The document discusses questions from a finance assignment. It explains the differences between forward and futures markets, defines in, at, and out-of-the-money options, and analyzes a scenario where a trader takes a long position in Mexican peso futures contracts expecting the futures price to rise based on their belief about the future spot price. The trader calculates they could make a profit of $9,780 if their prediction is correct.

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    Finanzas Internacionales: Ejercicios de La Tarea 3

    Uploaded by

    gerardo
    97 views8 pages
    The document discusses questions from a finance assignment. It explains the differences between forward and futures markets, defines in, at, and out-of-the-money options, and analyzes a scenario where a trader takes a long position in Mexican peso futures contracts expecting the futures price to rise based on their belief about the future spot price. The trader calculates they could make a profit of $9,780 if their prediction is correct.

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    A001685351_ejercicio3

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    The document discusses questions from a finance assignment. It explains the differences between forward and futures markets, defines in, at, and out-of-the-money options, and analyzes a scenario where a trader takes a long position in Mexican peso futures contracts expecting the futures price to rise based on their belief about the future spot price. The trader calculates they could make a profit of $9,780 if their prediction is correct.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    97 views8 pages

    Finanzas Internacionales: Ejercicios de La Tarea 3

    Uploaded by

    gerardo
    The document discusses questions from a finance assignment. It explains the differences between forward and futures markets, defines in, at, and out-of-the-money options, and analyzes a scenario where a trader takes a long position in Mexican peso futures contracts expecting the futures price to rise based on their belief about the future spot price. The trader calculates they could make a profit of $9,780 if their prediction is correct.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 8

    Finanzas Internacionales

    Ejercicios de la tarea 3

    Gerardo Bonilla Carrillo

    Maestría en Finanzas
    18 de mayo de 2020
    nacionales

    a tarea 3

    A01685351

    Finanzas
    de 2020

    Profesor titular: Dr. Gerardo C. Salazar Viezca

    Profesora Tutora: M. Karla Macías González


    Pregunta 4, problema 9

    4. Explain purchasing power parity, both the absolute and relative versions. What causes deviations from purchasing power pa
    The absolute version of purchasing power parity (PPP): S = P$/P£.
    The relative version: e = π$ - π£.
    PPP can be violated if there are barriers to international trade or if people in different countries have different commodity valu
    standard consumption or commodity basket.

    9. Suppose that the current spot exchange rate is €1.50/£ and the one-year forward exchange rate is €1.60/£. The one-year in
    €1,000,000 or the equivalent pound amount, that is, £666,667, at the current spot exchange rate.
    a. Show how you can realize a guaranteed profit from covered interest arbitrage. Assume that you are a euro-based investor.
    spot exchange 1.50 €/£
    1.60 €/£
    interest rate 5.40% €
    5.20% £
    borrow 1000000 € 1.5
    equivalent 666667 £

    1+i€= 1.054 > (F/S)(1+i €)= 1.122133333333


    i have to thus borrow in euros and lend in pound
    a) Borrow €1000000 and to repay € € 1,054,000.00 in one year
    b) Buy £ 666,667.00 spot for € 1,000,000.00
    c) Invest £ 666,667.00 whit 5.2% interest , the value will be £ 701,333.68
    d) To hedge exchange risk, sell the maturity value £ 701,333.68 forward in exchange for

    b. Discuss how the interest rate parity may be restored as a result of the above transactions.
    Due to arbitrage transaction, the euro interest rate will rise, the pound interest fall, the spot exchange will rise and the forwar
    be like this until the interest rate parity will be restored

    c. Suppose you are a pound-based investor. Show the covered arbitrage process and determine the pound profit amount.
    The pound-based investor will carry out the same transactions a) b) c), but to hedge, he will buy
    the arbitrage will be then £ 42,583.68
    ns from purchasing power parity?

    ve different commodity values. PPP is the law of one price applied to a

    e is €1.60/£. The one-year interest rate is 5.4 percent in euros and 5.2 percent in pounds. You can borrow at most

    are a euro-based investor. Also determine the size of the arbi-trage profit.

    n exchange for € 1,122,133.33 The arbitrage profit will be € 68,133.33

    ange will rise and the forward rate will fall and these adjustments will

    e pound profit amount.


    € 1,054,000.00 forward in change for £ 658,750.00
    Preguntas 1 y 6, problema 4

    1. Explain the basic differences between the operation of a currency forward market and a futures market.
    The forward market is an OTC market where the forward contract for purchase or sale of foreign currency is tailor-made betw
    client and its international bank. No money changes hands until the maturity date of the contract when delivery and receipt a
    typically made. A futures contract is an exchange-traded instrument with standardized features specifying contract size and de
    date. Futures contracts are marked-to-market daily to reflect changes in the settlement price. Delivery is seldom made in a fut
    market. Rather a reversing trade is made to close out a long or short position

    6. What is meant by the terminology that an option is in-, at-, or out-of-the-money?


    St>E(E>St) in-the-money
    St =~ E at-the-money
    St<E(E<St) out-of-the-money

    4. Using the quotations in Exhibit 7.3, note that the June 2019 Mexican peso futures contract has a price of $0.05143 per MXN
    spot price in June will be 0.05795 per MXN. What speculative position would you enter into to attempt to profit from your bel
    anticipated profits, assuming you take a position in three contracts. What is the size of your profit (loss) if the futures price is i
    predictor of the future spot price and this price materializes?

    June 2019 $0.05143 MXN


    June believe $0.05795 MXN

    If we think that peso will rise from 0.05143 to 0.05795 per MXN, we will take a long position in futures since the futures price
    than we expected price spot.

    Anticiped profit from 3 contract $9,780.00


    If is an unbiased predictor the future price of spot price expected, the spot price expected is the price of
    If this price spot is true, we will not have any losses or profits from the short position in 3 contracts
    currency is tailor-made between the
    t when delivery and receipt are
    specifying contract size and delivery
    elivery is seldom made in a futures

    s a price of $0.05143 per MXN. You believe the


    ttempt to profit from your beliefs? Calculate your
    fit (loss) if the futures price is indeed an unbiased

    utures since the futures price of 0.05143 is less

    $0.05143 per MXN


    $0.00000

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