Today’s spot $/£ rate is $1.312419/£. The U.S. 1-year bond rate is 1.43%. The U.K. 1-year bond rate is .44%.
a. You have found a future (cash-settled) for a pound (£) denominated in dollars. What is the contract price? (We learned this a while ago. Check the first exam.) You can round this to 2 decimal places.
b. In one year, the spot rate will take some value. For every possible future spot rate from 1 to 1.6 in increments of .01 (i.e. for 1, 1.01, 1.02, etc.), calculate the profit of one of these futures contracts from the long side and one of these futures contracts from the short side. Present this information graphically.
c. What is the current £/$ spot rate?
d. You have found a future (cash-settled) for a dollar denominated in pounds (£). What is the contract price?
e. In one year, the spot rate will take some value. For every possible future spot rate from .6 to 1 in increments of .01, calculate the profit of one of these futures contracts from the long side and one of these futures contracts from the short side. Present this information graphically.