What does the open interest number mean

Assignment Help Finance Basics

Reference no: EM131161328

Homework 1

Foreign Exchange Risk and Hedging

1. Assume that GE wants to raise the equivalent of $100 million by selling 6-month (or 3-month) Euro-commercial paper in Switzerland. Collect the U.S. $- Swiss franc exchange rate from a recent WSJ and compute the amount of commercial paper to sell in Swiss francs (SF) to bring home $100 million.

2. Collect the yield/rate on the 6-month (or 3-month) Euro-commercial paper. Keeping in mind that commercial papers do not offer any coupon interest and are sold at a discount, will the amount of commercial paper (in SF) in #1 be enough to raise $100 million? If not, compute how much commercial paper to sell to raise needed funds.

3. After six (or three) months, GE will have to pay the face value on the commercial papers. It does not want to take the risk due to exchange rate fluctuations. How can it hedge this risk?

4. Collect the 6-month (or 3-month) forward rate between $-SF. How many SF would GE have to buy to cover its payment for the commercial paper in Switzerland?

NOTES:

A. Each student works with different set of rates for the commercial paper and/or exchange rates
B. Use MS Excel for computation as well as text
C. Submit HW via eCourses

Homework 2

From a recent Wall Street Journal, pick up a quotation of each of the following securities and answer the questions that follow. Report each quotation in full with the date of the Journal at the top of every question. Everyone is expected to work individually with different quotations. Copying or multiple submissions will be severely penalized.

1. Commodity futures (choose any commodity)

(a) Name the primary commodity or asset for the contract
(b) Name the exchange (in full) on which the contract is traded
(c) What is the size of the contract?
(d) For any given delivery date, state the settlement price of the contract.
(e) Assuming 10% initial margin, how much money do you need to buy 10 contracts?
(f) What does the "open interest" number mean?

2. Interest rate Futures (Choose bonds or notes)

(a) Name the primary commodity or asset for the contract
(b) Name the exchange (in full) on which the contract is traded
(c) What is the size of the contract?
(d) For any given delivery date, compute the settlement price of the contract.
(e) Assuming 15% initial margin, how much money do you need to buy 10 contracts?

Reference no: EM131161328

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