1.Discuss the role of derivatives market in the financial market system.
2. Discuss the credit crisis of 2007.
3. Compare forward and futures contracts.
4. Explain basis risk.
.2.11. A trader buys two July futures contracts on orange juice. Each contract is for the delivery of 15,000 pounds. The current futures price is 120 cents per pound, the initial margin is $6,000 per contract, and the maintenance margin is $4,500 per contract. What price change would lead to a margin call? Under what circumstances could $2,000 be with- drawn from the margin account?
.2.15. At the end of one day a clearing house member is long 100 contracts, and the settlement price is $50,000 per contract. The original margin is $2,000 per contract. On the following day the member becomes responsible for clearing an additional 20 long contracts, entered into at a price of $51,000 per contract. The settlement price at the end of this day is $50,200. How much does the member have to add to its margin account with the exchange clearing house?
.2.24. Explain how CCPs work. What are the advantages to the financial system of requiring all standardized derivatives transactions to be cleared through CCPs?
.3.1. Under what circumstances are (a) a short hedge and (b) a long hedge appropriate?
.3.15. ‘‘When the futures price for an asset is less than the spot price, long hedges are likely to be particularly attractive.’’ Explain this statement.
.3.16. The standard deviation of monthly changes in the spot price of live cattle is (in cents per pound) 1.2. The standard deviation of monthly changes in the futures price of live cattle for the closest contract is 1.4. The correlation between the futures price changes and the spot price changes is 0.7. It is now October 15. A beef producer is committed to purchasing 200,000 pounds of live cattle on November 15. The producer wants to use the December live-cattle futures contracts to hedge its risk. Each contract is for the delivery of 40,000 pounds of cattle. What strategy should the beef producer follow?
.3.24. A trader owns 55,000 units of a particular asset and decides to hedge the value of her position with futures contracts on another related asset. Each futures contract is on 5,000 units. The spot price of the asset that is owned is $28 and the standard deviation of the change in this price over the life of the hedge is estimated to be $0.43. The futures price of the related asset is $27 and the standard deviation of the change in this over the life of the hedge is $0.40. The coefficient of correlation between the spot price change and futures price change is 0.95.
(a) What is the minimum variance hedge ratio?
(b) Should the hedger take a long or short futures position?
(c) What is the optimal number of futures contracts when issues associated with daily settlement are not considered?
(d) How can the daily settlement of futures contracts be taken into account?
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Answer the questions
Can you help me understand this Economics question?
To ensure that as many trial subscriptions to the 3-For-All service as possible are converted to regular subs, the marketing dept works closely with the customer support dept to accomplish a smooth initial process for the trial sub customers. To assist in this effort, the marketing dept needs to accurately forecast the monthly total of new regular subscribers.
A team consisting of managers from the marketing and customer service depts was convened to develop a better method of forecasting new subscriptions. Previously, after examining new subscription data for the prior three months, a group of managers would develop a subjective forecast of the number of new subs. Livia Salvador, who was recently hired by the company to provide expertise in quantitative forecasting methods, suggested the department look for factors that might help in predicting new subs.
Members of the team found that the forecasts in the past year had been particularly inaccurate because in some months, much more time was spent on telemarketing than in other months. Livia collected data (found in the AMS13.xlsx file in the Data folder) for the number of new subs and hours spent on telemarketing for each month in the past two years.
1. What are possible criticisms of only using the data from the previous three months to forecast new subscriptions?
2. What factors other than telemarketing hours may be useful in predicting the number of new subscriptions?
3. Develop a regression model to predict the number of new subs per month based on the hours spent on telemarketing. Estimate this model and check the assumptions.
4. If you expect to spend 1,200 hours on telemarketing per month, estimate the number of new subs for the month.
5. What would be the danger in predicting the number of new subscriptions in a month in which 2,000 hours were spent on telemarketing?
And I will also give you a classmate’s respond to comment (about 50-80 words) after you are finished.
