1. The current spot exchange rate is $1.55 = €1.00 The three-month forward rate is $1.60 = €1.00 The three-month U.S interest rate is 4.835% the three-month European interest rate is 4.983% You are looking at a three-month American call option on €62,500 with a strike price of $1.50 = €1.00 costing $.0369/€. How much of a profit will immediate exercise generate?
2. Yesterday, you entered into a futures contract to buy €62,500 at $1.50/€. Your initial margin was $3,750 (= 0.04 × €62,500 × $1.50/€ = 4 percent of the contract value in dollars). Your maintenance margin is $2,000 (meaning that your broker leaves you alone until your account balance falls to $2,000). At what settle price (use 4 decimal places) do you get a margin call?