US dollar futures index ("INDOL")

1. Introduction

INDOL is a futures contract. Each INDOL contract (a "Contract") has an underlying asset value of 1000 trading units equivalent to 1000 US Dollars calculated in accordance to the reference exchange rate determined by the Central Bank of the Republic of Argentina ("BCRA") as provided by Communication "A" 3500 (the "Reference Exchange Rate").

The BCRA calculates the Reference Exchange Rate every banking business day based on the foreign currency exchange market offer and sale price for Peso and US dollar exchange transactions. To calculate the Reference Exchange Rate the BCRA considers the price for exchange transactions of at least four financial entities of the local market that must reflect the prevailing foreign exchange market conditions at the time they are considered. The BCRA publishes the Reference Exchange Rate on a daily basis on the next banking business day.

The INDOL maturity dates will take place on a monthly basis on the last trading day of every month. Contracts cannot be negotiated for terms longer than twelve months.

As a guarantee of performance of the assumed covenants, the buyers and sellers must deposit an initial guarantee of US Dollars 100 per Contract in Caja de Valores S.A. The Board of Directors of MERVAL may request additional guarantees. The guarantees will be determined based on a risk appraisal of the holder of the Contract. The guarantee will be refunded upon termination of the Contract.

Losses and profits are calculated by the MERVAL on a daily basis, comparing: (i) for the initial trade date, the difference between the arranged price and the INDOL price at the time of the calculation, both per trading unit; and (ii) for the subsequent days, the difference between the INDOL closing price of the previous day and the INDOL price at the time of the calculation, both per trading unit.

At the end of each day, the holders of the positions that are losing will be required to pay the losses in cash. To cover these interim losses it is convenient to constitute an additional guarantee deposit. If losses are not covered, the MERVAL will close the positions that are necessary to cover the guarantee. On the other hand, the positions that are earning profits can withdraw them. These are zero-sum transactions which means that the buyer's profits are matched by the seller's losses, and vice versa.

At the maturity date, the future price meets the spot price, open positions are settled in Pesos according to the difference between the INDOL closing price of the previous date and the value of the Reference Exchange Rate of the BCRA on the maturity date.

It is not necessary to wait until the maturity date to close positions, as the Contracts may be sold at anytime in the market at market price.

2. Transaction Examples

An investor wants to hedge the price of US Dollars 10,000 at the end of December 2002 (always within the next twelve months). Through an authorized broker, the investor buys 10 Contracts with maturity date December 31, 2002, for an amount of Pesos 4,200 each (market price of the day in which the transaction was arranged) for an aggregate value of Pesos 42,000. The initial guarantee would be US Dollars 1,000 (US Dollars 100 per Contract).

If at the end of the first day, INDOL price at December 2002 is Pesos 4,100, the investor would be losing Pesos 100 per Contract. In that case, MERVAL will request him to pay the accumulated losses of Pesos 1,000 (Pesos 100 for 10 contracts). If the investor does not pay them, MERVAL may close the position of 3 INDOL Contracts and settle their respective guarantees in order to cover the losses (US Dollars 300 x 3,6 = Pesos 1,080).

If at the second day the closing price is Pesos 4,150, the investor is entitled to withdraw Pesos 50 per Contract. If the third day the closing price increases to Pesos 4,200, the investor is entitled to withdraw Pesos 50 per Contract. If at the maturity date the Reference Exchange Rate of the BCRA is Pesos 4,400 per US Dollars 1,000, the investor will receive Pesos 200 per Contract (if we assume that the price was Pesos 4,200 the day before). If the investor bought each Contract at Pesos 4,200 and at the maturity date the Reference Exchange Rate of the BCRA is Pesos 4,400, the investor would have received a net amount of Pesos 200 per Contract (he paid Pesos 100 the first day but cashed Pesos 50 the second, Pesos 50 the third day and Pesos 200 at the maturity date which results in a final amount of Pesos 200). Therefore, although the price of US Dollars 1,000 is Pesos 4,400, when he receives Pesos 200 as a result of each position in the futures market, the net price is Pesos 4,200 which is the price at which he purchased the December 2002 INDOL Contracts.