1. Suppose you buy a call option on a $100,000 Treasury bond futures contract with an exercise price of $99,000 for a premium of $1000. If on expiration the price of the futures contract is $98,500, what is your profit or loss on the contract?
2. Suppose you buy a put option on a $100,000 Treasury bond futures contract with an exercise price of $100,000 for a premium of $1500. If on expiration the futures contract has a price of $99,000, what is your profit or loss on the contract?
3. Suppose you buy a Treasury bond futures contract for a price of 98.5 percent of the face value of $100,000. Assume that the Treasury bond futures price rises to 99.5 percent. What is your loss or gain?
4. Suppose that the pension fund you are managing is expecting an inflow of funds of $10 million next year and you want to make sure that you will earn the current interest rate of 6% when you invest the incoming funds in long-term bonds. How would you use the futures market to do this?
5. Suppose foreign investors reduce their willingness to invest in U.S. assets. Explain what would happen to the value of the dollar on average and why.
6. Suppose the European central bank greatly increases the supply of Euros it issues. Explain what would happen to the value of the Euro on average and why.