The treasurer for Pittsburgh Iron Works wishes to use financial futures to hedge her interest rate exposure. She will sell five Treasury futures contracts at $123,000 per contract. It is July and the contracts must be closed out in December of this year. Long-term interest rates are currently 12.30 percent. If they increase to 13.50 percent, assume the value of the contracts will go down by 15 percent. Also, if interest rates do increase by 1.2 percent, assume the firm will have additional interest expense on its business loans and other commitments of $102,500. This expense, of course, will be separate from the futures contracts. Required:
a. What will be the profit or loss on the futures contract if interest rates increase to 10.50 percent by December when the contract is closed out?
b. After considering the hedging, what is the net cost to the firm of the increased interest expense of $139,000?
c. What percent of this $139,000 cost did the treasurer effectively hedge away?

Profits from using currency options and futures. on july 2, the two-month futures rate of the mexican peso contained a 2 percent discount (unannualized). there was a call option on pesos with an exercise price that was equal to the spot rate. there was also a put option on pesos with an exercise price equal to the spot rate. the premium on each of these options was 3 percent of the spot rate at that time. on september 2, the option expired. go to the oanda. com website (or any site that has foreign exchange rate quotations) and determine the direct quote of the mexican peso. you exercised the option on this date if it was feasible to do so. a. what was your net profit per unit if you had purchased the call option? b. what was your net profit per unit if you had purchased the put option? c. what was your net profit per unit if you had purchased a futures contract on july 2 that had a settlement date of september 2? d. what was your net profit per unit if you sold a futures contract on july 2 that had a settlement date of september 2