One year ago, you sold a put option on 100,000 Australian dollars with an expiration date of one year. You received a premium on the put option of AU$.04 per unit. The exercise price was AU$0.78. Assume that one year ago, the spot rate of the Australian dollar was $0.76, the one-year forward rate exhibited a discount of 2 per cent, and the one-year futures price was the same as the one-year forward rate. From one year ago to today, the Australian dollar depreciated against the US dollar by 4 per cent. Today, the put option will be exercised (if it is feasible for the buyer to do so). Determine the total dollar amount of your profit or loss from your position in the put option. Now assume that instead of taking a position in the put option one year ago, you sold a futures contract on 100,000 Australian dollars with a settlement date of one year. Determine the total dollar amount of your profit or loss.

One year ago, you sold a put option on 100,000 Australian dollars with an expiration date of one year. You received a premium on the put option of AU$.04 per unit. The exercise price was AU$0.78. Assume that one year ago, the spot rate of the Australian dollar was $0.76, the one-year forward rate exhibited a discount of 2 per cent, and the one-year futures price was the same as the one-year forward rate. From one year ago to today, the Australian dollar depreciated against the US dollar by 4 per cent. Today, the put option will be exercised (if it is feasible for the buyer to do so). Determine the total dollar amount of your profit or loss from your position in the put option. Now assume that instead of taking a position in the put option one year ago, you sold a futures contract on 100,000 Australian dollars with a settlement date of one year. Determine the total dollar amount of your profit or loss.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 5ST

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