FUTURE MARKET RELATED PROBLEMS :

QUESTIONS :

 1.

Construct a delivery date profit or loss graph for a long position in a forward contract with a delivery price of $70. Analyze the profit or loss for values of the underlying asset ranging from $40 to $95?

 2.

Construct a delivery date profit or loss graph for a short position in a forward contract with a delivery price of $60. Analyze the profit or loss for values of the underlying asset ranging from $50 to $100?

 3.

The SCC operates a crude oil refinery. Plant’s current   operating capacity is 1 million barrels. Crude is converted into products at  the cost of $15 per barrel of crude.. It can sell the products at $185 per barrel of crude used. It is advised by the banker to enter into a one-year forward contract at $135 per barrel.

 

a. Find the unhedged profit annually if the crude price may vary from $115 to $155 per barrel.

b. Find the fixed cost and profit  if the forward contract is entered into. 

 4.

Fill up the blanks :

 

Because …..
(Both parties have or neither party has)
…..to post margin when they enter into a future contract and because they mark to market ……(everyday until the delivery date or on the delivery date)
…..we are ………..(assured or not assured)
……the party and the counter party to the contract have already posted the gain or loss to the other and the risk of default ………(still exists or is thereby negated)
………… .