Use the following information to answer the next four questions. Your business (US company) will receive a...

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Finance

Use the following information to answer the next fourquestions.
Your business (US company) will receive a payment of 150,000British pounds. You have decided to fully hedge your companyâ€™sforeign exchange risk with futures contracts. Each futures contractfor British pounds has an initial margin of $1500 and a maintenancemargin of $1100. Each futures contract has 25,000 British poundsattached. You open your position on 11/30/2018 when the futuresprice was $1.955 per pound. The table below shows the futuresprices for the three days immediately after you opened yourposition.
12/1/2018
12/2/2018
12/3/2018
Futures Price
$2.005
$2.009
$1.995
1) Find your initial margin balance on the day you opened yourposition.
2) Find your ending margin balance on 12/1. Assume any deficitsare eliminated to keep the position open and any excesses remain inthe account.
3) Find your ending margin balance (in dollars) on12/3.Â Â Assume deficits are eliminated to keep theposition open and excesses remain in the account. Do not usecurrency symbols or words when entering your response.
4) Find the total amount of variation margin that occurred from11/30-12/3.

Answer & Explanation Solved by verified expert

4.4 Ratings (541 Votes)

To hedge the position the person will sell the futures contract Amount to be hedged 150000 pound Size of 1 future contract 25000 pound Number of Contracts 15000025000 6 Exchange Rate on 1130 See Answer

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