CHAPTER 3
Hedging Strategies Using Futures
Practice Questions
Problem 3.8.
In the Chicago Board of Trade’s corn futures contract, the following delivery months are available: March, May, July, September, and December. State the contract that should be ud for hedging when the expiration of the hedge is in
a)June
b)July
c)January
susan boyleA good rule of thumb is to choo a futures contract that has a delivery month as clo as p
ossible to, but later than, the month containing the expiration of the hedge. The contracts that should be ud are therefore 主持人培训课程
(a)July
(b)September
(c)March
Problem 3.9.
Does a perfect hedge always succeed in locking in the current spot price of an ast for a future transaction? Explain your answer.
No. Consider, for example, the u of a forward contract to hedge a known cash inflow in a foreign currency. The forward contract locks in the forward exchange rate, which is in general different from the spot exchange rate.
Problem 3.10.
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Explain why a short hedger’s position improves when the basis strengthens unexpectedly and worns when the basis weakens unexpectedly.
The basis is the amount by which the spot price exceeds the futures price. A short hedger is long the ast and short futures contracts. The value of his or her position therefore improves as the basis increas. Similarly it worns as the basis decreas.
Problem 3.11.
mylove的歌词Imagine you are the treasurer of a Japane company exporting electronic equipment to the United States. Discuss how you would design a foreign exchange hedging strategy and the arguments you would u to ll the strategy to your fellow executives.
The simple answer to this question is that the treasurer should
1.Estimate the company’s future cash flows in Japane yen and U.S. dollars
2.Enter into forward and futures contracts to lock in the exchange rate for the U.S. dollar cash flows.
However, this is not the whole story. As the gold jewelry example in Table 3.1 shows, the company should examine whether the magnitudes of the foreign cash flows depend on the exchange rate. For example, will the company be able to rai the price of its product in U.S. dollars if the yen appreciates? If the company can do so, its foreign exchange exposure may be quite low. The key estimates required are tho showing the overall effect on the company’s profitability of changes in the exchange rate at various times in the future. Once the estimates have been produced the company can choo between using futures and options to hedge its risk. The results of the analysis should be prented carefully to other executives. It should be explained that a hedge does not ensure that profits will be higher. It means that profit will be more certain. When futures/forwards are ud both the downside and upside are eliminated. With options a premium is paid to eliminate only the downside.
Problem 3.12.
Suppo that in Example 3.4 the company decides to u a hedge ratio of 0.8. How does the decision affect the way in which the hedge is implemented and the result? 爱着你永远不会改变
If the hedge ratio is 0.8, the company takes a long position in 16 December oil futures contracts on June 8 when the futures price is $8. It clos out its position on November 10. The spot price and futures price at this time are $95 and $92. The gain on the futures position is
(92 − 88)×16,000 = $64,000
The effective cost of the oil is therefore
好习惯成就好人生20,000×95 − 64,000 = $1,836,000
or $91.80 per barrel. (This compares with $91.00 per barrel when the company is fully hedged.) 查德威克博斯曼
Problem 3.13.
“If the minimum-variance hedge ratio is calculated as 1.0, the hedge must be perfect." Is this statement true? Explain your answer.英文资料
The statement is not true. The minimum variance hedge ratio is
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responsibilityIt is 1.0 when and . Since the hedge is clearly not perfect.
Problem 3.14.
“If there is no basis risk, the minimum variance hedge ratio is always 1.0." Is this statement true? Explain your answer.
The statement is true. Using the notation in the text, if the hedge ratio is 1.0, the hedger locks in a price of . Since both and are known this has a variance of zero and must be the best hedge.
Problem 3.15
“For an ast where futures prices are usually less than spot prices, long hedges are likely to be particularly attractive." Explain this statement.
A company that knows it will purcha a commodity in the future is able to lock in a price clo to the futures price. This is likely to be particularly attractive when the futures price is less than the spot price. An illustration is provided by Example 3.2.
