Instructions

Watch the videos prepared by the instructor and read the PDF guide labeled “Speculating with

Currencies” and then answer the questions below.

Please continue using the Excel template provided for the project. Make sure the data obtained in

Parts 1 and 2 are included in the file.

When you develop your formulas, please LINK the values you obtained in your data collections.

Be aware that the Excel template has only a few formulas that are currently working but student

submissions must include all formulas required to get the answers.

Answers to questions 6 and 7 are very important for your grade. They should reflect your

understanding about the exercise.

Required questions:

1a. If you had speculated the day of DC1 by purchasing currency forward contract(s) that specify delivery

of 1 million units of the foreign currency, and then settled up on your contract(s) the day of DC2, what

would be your profit or loss?

1b. If you had speculated the day of DC1 by selling currency forward contract(s) that specify receipt of 1

million units of the foreign currency, and then settled up on your contract(s) the day of DC2, what

would be your profit or loss?

Please report the profit/loss before and after commissions.

2a. If you had speculated the day of DC1 by purchasing currency futures contract(s) that specify delivery

of 1 million units of the foreign currency, and then closed your contract(s) the day of DC2, what would

be your profit or loss?

Please report the profit/loss before and after commissions.

2b. If you had speculated the day of DC1 by selling currency futures contract(s) that specify receipt of 1

million units of the foreign currency, and then closed your contract(s) the day of DC2, what would be

your profit or loss?

Please report the profit/loss before and after commissions.

3a. Assume that you had speculated the day of DC1 by purchasing call options that specify 1 million units

of the foreign currency. You then disposed of your contract the day of DC2 or exercised them if it was

reasonable to do so. What would be your profit or loss after considering the premium you paid for the

call options? Calculate your results for the OTM, ATM and ITM options.

Please report the profit/loss before and after commissions.

Part 3 of Class Project International Finance Dr. Xavier Garza Gomez

3b. Assume that you had speculated the day of DC1 by selling call options that specify 1 million units of

the foreign currency. If calls are expiring, the counter-party on your contract exercised the contract

the day of DC2 if it was feasible to do so. If calls have time value you would have to cancel them at

market prices. What would be your profit or loss after considering the premium you received from

selling the call options? Calculate your results for the OTM, ATM and ITM options. Please report the

profit/loss before and after commissions.

4a. Assume that you had speculated the day of DC1 by purchasing put options that specify 1 million units

of the foreign currency. You then disposed of your contracts the day of DC2 or exercised them if it

was reasonable to do so. What would be your profit or loss after considering the premium you paid for

the put options? Calculate your results for the OTM, ATM and ITM options.

Please report the profit/loss before and after commissions.

4b. Assume that you had speculated the day of DC1 by selling put options that specify 1 million units of

the foreign currency. If puts are expiring, the counter-party on your contract exercised the contract at

the day of DC2 if it was feasible to do so. If puts have time value you would have to cancel them at

market prices. What would be your profit or loss after considering the premium you received from

selling the put option? Calculate your results for the OTM, ATM and ITM options. Please report the

profit/loss before and after commissions.

5a. If you had speculated the day of DC1 by purchasing 1 million units of the foreign currency in the spot

market, and then closed your position the day of DC2, what would be your raw profit or loss?

Estimate the carryover cost/revenue using LIBOR rates and broker rollover rates and estimate the net

profit/loss.

5b. If you had speculated the day of DC1 by selling 1 million units of the foreign currency in the spot

market, and then closed your position the day of DC2, what would be your gross profit or loss?

Estimate the carryover cost/revenue using LIBOR rates and broker rollover rates and estimate the net

profit/loss.

6. Refer to the consensus forecast obtained from Fxstreet,com. Did they suggest to buy or to sell the

foreign currency? identify the trades suggested by “analysts” in your Excel file

How much was the net P/L if you traded 1,000,000 units of the FOREIGN currency (100,000,000 in

the case of the JPY)

7. What did you learn about the use of financial instruments to speculate? Summarize your

understanding in one paragraph. Discuss if the currency went up/down or stayed flat and how that

affected the different strategies. Which strategy was most profitable? Which strategy performed the

worst? Was it good to follow the “experts”? Which option is better ATM, ITM or OTM? Why are

rollover estimates different among brokers? What conclusions can you get from this exercise?