Fin 450 Derivatives Unit 2 Assignment

FIN 450 Derivatives Unit 2 Assignment

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FIN 450 Derivatives Unit 2 Assignment

Derivatives Unit 2 Assignment

1. Indicate whether a forward or a futures contract would be more appropriate in each of the following scenarios. You can just type “forward” or “futures” after each description.

2. You want to be sure there is no credit risk from the counterparty failing to pay.

3. You will have a non-standard amount of a commodity to sell.

4. You will be taking a long position, and you want delivery to take place on one specific date.

5. You want your account to be settled on a daily basis.

6. You will have a commodity to sell, but you have no particular person in mind to sell it to.

2. Sally and Larry have entered 10 futures contracts for November wheat at $9 per bushel, with Sally short and Larry long. (In other words, Sally sold the contract and Larry bought it). One contract is for 5,000 bushels of wheat.

3. If these contracts remain open until delivery, who makes the delivery and how much wheat is delivered? Who makes the payment and how much is paid?

4. If this is a typical futures contract traded through an exchange, is it likely that these contracts will actually remain open through delivery? Explain.

3. The widget exchange has just opened for the first time, and the following trades take place on the first day. One contract is for one widget to be delivered in March.

• 10 contracts traded with Alan long and Ben short.

• 20 contracts traded with Alan long and Chris short.

• 10 contracts traded with Ben long and Chris short.

1. Find the net position of each person at the end of the day, using the terms “long” and “short” as appropriate.

Alan:

Ben:

Chris:

1. Find the day’s trading volume.

2. Find the open interest.

4. Suppose that you enter into a long futures contract to buy December cattle for $1.24 per...