1. You are the fund manager with $90 million of pension funds under management entirely invested in the S&P 500 composite index, the contract value of each full point on the futures contract is $100. The index currently reads 900 and the March futures sells at 905, you are concerned that the market may fall to 800 points by expiry. What should you do to hedge your portfolio against such a fall by expiration of the futures contract?
2. The three month short term Eurofutures interest rate contract for June is reading 97.5. The notional size of the contract is for 1 million Euros. You are anticipating that 3 month spot interest rates on the Euro in June will be 3% per annum. You are a speculator and are prepared to buy or sell only one contract. Which of the following is true if spot interest rates are in fact 4% in June.
3. The dividend yield on the FTSE 100 stock index is 2%, the risk free rate of interest 6%. The FTSE 100 cash index is reading 5000 the June Futures contact has 180 days left to expiration. What is an appropriate fair value for the June FTSE 100 index contract (use a 365 day calendar year)?
4. The three month short term Eurofutures interest contract for September is reading 97, the notional size of the contract is for 1 million Euros. You are anticipating that 3 month spot interest rates on the Euro in September will be 2% per annum. You are a speculator and are prepared to buy or sell only one contract. Which of the following is true if spot interest rates are in fact 2% in September :
5. The spot dollar-sterling exchange rate is $1.80/£1. If interest rates in the UK are 6% and interest rates in the US are 3% then which of the following statements about a currency futures is correct?