a) Assume the euro's spot price at the expiration date (market price) is *123/€ The investor's profit = ( X/€ b) Assume the euro's spot price at the expiration date (market price) is ¥137/€ The investor's profit = ( ¥/€ c) What is the maximum loss Maximum loss = X/€ d) What the maximum profit Maximum profit = ¥/C
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- An investor is expecting that the euro either will sharply increase or sharply decrease against the Japanese Yen. The investor purchases 2 options 1) a currency put option on the euro with a strike price (exchange rate) of ¥127/€. When the investor purchases the contract, the spot rate of the euro is equivalent to ¥127/€. the premium is ¥2/€ 2) a currency call option on the euro with a strike price (exchange rate) of ¥127/€. When the investor purchases the contract, the spot rate of the euro is equivalent to ¥127/€. the premium is ¥1/€ a) Assume the euro's spot price at the expiration date (market price) is ¥139/€ The investor's profit = ¥/€ b) Assume the euro's spot price at the expiration date (market price) is ¥118/€ The investor's profit = ¥/€ c) What is the maximum loss Maximum loss = ¥/€An investor is bullish on the euro and believes it will increase against the Japanese Yen. The investor purchases a currency call option on the euro with a strike price (exchange rate) of ¥126/€. When the investor purchases the contract, the spot rate of the euro is equivalent to ¥126/€. Assume the euro's spot price at the expiration date (market price) is ¥136/€. the premium is ¥4/€ a) Assume the euro's spot price at the expiration date (market price) is ¥136/€ The investor's profit = ¥/€ b) Assume the euro's spot price at the expiration date (market price) is ¥122/€ The investor's profit = ¥/€ c) What is the maximum loss Maximum loss = ¥/€An investor is bearish on the euro and believes it will decrease against the Japanese Yen. The investor purchases a currency put option on the euro with a strike price (exchange rate) of ¥135/€. When the investor purchases the contract, the spot rate of the euro is equivalent to ¥132/€. the premium is ¥2/€ a) Assume the euro's spot price at the expiration date (market price) is ¥125/€ The investor's profit = ¥/€ b) Assume the euro's spot price at the expiration date (market price) is ¥137/€ The investor's profit = ¥/€ c) What is the maximum loss Maximum loss = ¥/€ d) What the maximum profit Maximum profit = ¥/€
- A currency speculator wants to speculate on the future movements of the €. The speculator expects the € to appreciate in the near future and decides to concentrate on the nearby contract. The broker requires a 2% Initial Margin (IM) and the Maintenance Margin (MM) is 75% of IM. Following € Futures quotes are currently available from the Chicago Mercantile Exchange (CME). Euro (CME) - €125,000; $/€ Open High Low Settle Change Open Interest June 1.2216 1.2276 1.2175 1.2259 -0.0018 255,420 Sept 1.2229 1.2288 1.2189 1.2269 - 0.0018 19,335 In addition to the information provided above, consider the following CME quotes that are available at the end of day one’s trading: Euro (CME) - €125,000; $/€ Open High Low Settle Change Open Interest June 1.2216 1.2276 1.2175 1.2176 -0.0083…A European put option contract with an exercise price of $1.65 per pound and a contract size of £32,000 is currently trading at a premium of $0.18 per pound. Required: a-1. If you buy this contract, what spot exchange rate at maturity will maximize your profit? a-2. If you buy this contract, what is the amount of the maximum possible profit from one contract? b. If you buy this contract, what is your maximum possible loss from one contract? c. If you sell this contract, what is your maximum possible profit on this contract? d-1. If you sell this contract, what is your maximum possible loss from one contract? d-2. At what future spot exchange rate will you maximize your loss? e. At what future spot exchange rate, will either the buyer or seller of this contract break even?If the spot price of the euro is $1.10 per euro and the 30-day forward rate is believe that the spot rate in 30 days will be $1.05 per $1.00 per euro, and euro, then you can try to maximize speculative gains by buying euros in the current spot market and selling euros in 30 days at the future spot rate. you signing a forward foreign exchange contract to sell euros in 30 days. signing a forward foreign exchange contract to sell dollars in 30 days. buying dollars in the spot market and selling the dollars in 30 days at the future spot rate.
- Suppose that you are a speculator that anticipates an appreciation of the Singapore dollar (S$). You purchase a call option contract on Singapore dollars. Each contract represents S$25,000, with a strike price of $0.86 and call option premium of $0.02 per unit. Suppose that the spot price of the Singapore dollar is $0.92 just before the expiration of the call option contract. At this time, you call the contract and immediately sell the Singapore dollars to a bank at the current spot price. Now consider this scenario from the perspective of the individual or firm that sold you the call option. Note: Assume there are no brokerage fees. Use the drop-down selections to fill in the following table from the sellers perspective. Transaction Selling Price of S$ - Purchase Price of S$ + Premium Paid for Option = Net Profit Per Unit $0.86 -$0.92 $0.02 Per Contract $21,500 $12,900 $27,950Suppose that you are a speculator that anticipates an appreciation of the Singapore dollar (S$). You purchase a call option contract on Singapore dollars. Each contract represents S$25,000, with a strike price of $0.86 and call option premium of $0.02 per unit. Suppose that the spot price of the Singapore dollar is $0.92 just before the expiration of the call option contract. At this time, you call the contract and immediately sell the Singapore dollars to a bank at the current spot price. Use the drop-down selections to fill in the following table from your (the buyer's) perspective. Note: Assume there are no brokerage fees. Transaction Selling Price of S$ - Purchase Price of S$ Premium Paid for Option Net Profit = Per Unit $0.92 -$0.86 -$0.02 Per Contract $23,000 $18,400 $13,800You expect to incur a cost and make a payment of €35,000 in one year. The currentEUR/GBP exchange rate is £0.92 per euro. The current 1-year interest rates are:GBP 4%, EUR 5%. Explain what kind of risk you might be facing in the situationdescribed above. Provide an example of a forward contract that you would use inorder to hedge against the relevant exchange rate risk. Analyse the possibleoutcomes of your strategy if the EUR/GBP exchange rate in one year is (1) £0.89per euro, and (2) £0.98 per euro.
- α) Suppose that the annual interest rate of the Euro (€) is 2% and the annual interest rate of the US Dollar ($) is 1%. The current $/€ exchange rate is $1 = €1.10. The expected exchange rate from a European investor after one year is 1.10 5 (1$= 1.105€). Is there arbitrage margins from the point of view of a European investor provided that his expectation for the future exchange rate is verified? Show what this investor can do.4. Assume the following: The spot rate for the euro is $1.15 a. A call option is available with an exercise price of $1.17 and a premium of $0.02 per unit. Expectation of euro's spot rate as of the settlement date is $1.20 What could you do to profit from your expectations? b. The euro is worth $1.15, and the Canadian dollar is worth $0.60. What is the value of the euro in Canadian dollars?A British importer who owes €100,000 wants to hedge the currency exposure using options. In order to accomplish this, the importer will need to OA Buy PUT option on the £ with strike in US. S and buy CALL option on the with strike in 5 O Buy PUT option on the £ with strike in OC. Buy CALL option on the E with strike in f OD. ALL of the above
