None Reska, Inc., has constructed a long euro straddle. A call option on euros with an exercise price of $1.20 has a premium of $0.017 per unit. A euro put option has a premium of$0.010 per unit. Some possible euro values at option expiration are shown in the table below.a. Complete the worksheet and determine the net profit per unit to Reska, Inc., for each possible future spot rate. Use a minus sign to enter loss values, if any. If theanswer is zero, enter "0". Round your answers to three decimal places.CallPutNet$$$$0.90$Value of Euro at Option Expiration$1.05$1.50$$$$$$2.00b. Determine the break-even points of the long straddle. What are the break-even points of a short straddle using these options? Round your answers to three decimalplaces.Lower break-even point (long straddle): $Higher break-even point (long straddle): $Lower break-even point (short straddle): $Higher break-even point (short straddle): $

The options are contracts that offer you the option to purchase or sell assets at a specific price,…

a. Complete the worksheet and determine the net profit per unit to Reska, Inc., for each possible future spot rate. Use a minus sign to enter loss values, if any. If the answer is zero, enter "O". Round your answers to three decimal places. Call Put $0.90 Value of Euro at Option Expiration $1.05 $1.50 $2.00 Net $ $ $ b. Determine the break-even points of the long straddle. What are the break-even points of a short straddle using these options? Round your answers to three decimal places. Lower break-even point (long straddle): $ Higher break-even point (long straddle): $ Lower break-even point (short straddle): $ Higher break-even point (short straddle): $

a. Complete the worksheet and determine the net profit per unit to Reska, Inc., for each possible future spot rate. Use a minus sign to enter loss values, if any. If the answer is zero, enter "O". Round your answers to three decimal places. Call Put $0.90 Value of Euro at Option Expiration $1.05 $1.50 $2.00 Net $ $ $ b. Determine the break-even points of the long straddle. What are the break-even points of a short straddle using these options? Round your answers to three decimal places. Lower break-even point (long straddle): $ Higher break-even point (long straddle): $ Lower break-even point (short straddle): $ Higher break-even point (short straddle): $

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 27QA

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Similar questions

You are considering a European put option and a European call option on ABC Ltd and have available the following information. The put option with an exercise price of $15 and time to maturity of 60 days is priced at $2.00. The call option with the same exercise price and time to maturity is priced at $3.00. The underlying asset price is $15. The risk-free rate is 2% per 60 days. Could an arbitrage profit be earned? If so, how much the arbitrage profit is? Show your works (Hint: use discrete put-call parity equation and consider two scenarios for stock price at maturity of the options: $10 or $20).
The following graph shows the contingency graph for sellers of euro call options, with a premium of $0.08 and an exercise price of $1.16. NET PROFIT PER UNIT (Dollars per unit) 0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0 -0.01 -0.02 -0.03 -0.04 -0.05 -0.06 -0.07 -0.08 -0.09 1.12 1.14 1.16 1.18 1.20 1.22 1.24 1.26 1.28 1.30 FUTURE SPOT RATE (Dollars per euro) According to the graph, if the spot rate turns out to be $1.18, and the option is exercised, the seller will According to the graph, break-even price is per unit.
Suppose a European call option to buy 1 euro for 1.40 CAD costs 0.08 CAD. The option maturity is in two months and the forward exchange rate for the same maturity is 1.50 CAD per euro. What arbitrage opportunity exists? Explain how you can exploit this opportunity and how much the profit is. (Ignore the time value of money)
A European call that will expire in one year is currently trading for $3. Assume the risk-free rate (based on continuous compounding) is 5%, the underlying stock price is $60 and the strike price is $55. a. Is there an arbitrage opportunity? b. Describe exactly what a trader should do to take advantage of the arbitrage opportunity assuming it exists. c. Determine the present value of the profit that the trader can earn assuming you identify an arbitrage opportunity. Use at least four decimal places for those questions that require a numerical answer.
The following graph shows the contingency graph for purchasers of euro put options, with a premium of $0.06 and an exercise price of $1.38. NET PROFIT PER UNIT (Dollars per unit) 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0 -0.01 -0.02 -0.03 -0.04 -0.05 -0.06 OD ← 1.3, 0 -0.07 + 1.22 1.24 1.26 1.28 1.30 1.32 1.34 1.36 1.38 1.40 FUTURE SPOT RATE (Dollars per euro) ? According to the graph, if the spot rate turns out to be $1.26, and the option is exercised, the buyer will According to the graph, break-even price is $0.04 $0.06 $0.01 $0.03 per unit.
Suppose you work as a broker in an investment company, and there is an expectation that the market interest rate will be 0.031. based on this expectation you are required to calculate the market price for the following CD; Issue date: 1 January 2021 Maturity date:10 May 2021. The face value OMR 10000. Interest on CD: 5 percent.
to-date with security updates, fixes, and Improvements, choose Check for Updates. A speculator has purchased United States dollar put options, with an exercise price of A$1.30 and a premium of A$0.05 per unit. (a) Calculate the break-even price. (b) Calculate the profit or loss of the option for the speculator if the spot rate at the time the speculator considers exercising the options is : (1) A$1.20 (2) A$1.28 (3) A$1.34 c) What is the maximum profit and maximum loss for the speculator? Focus
The following graph shows the contingency graph for purchasers of euro call options, with a premium of $0.04 and an exercise price of $1.42. NET PROFIT PER UNIT (Dollars per unit) 0.05 0.04 0.03 0.02 0.01 0 H -0.01 -0.02 -0.03 -0.04 17 -0.05 O 1.38 1.40 1.42 1.44 1.46 1.48 1.50 1.52 1.54 1.56 FUTURE SPOT RATE (Dollars per euro) (?) According to the graph, if the spot rate turns out to be $1.48, and the option is exercised, the buyer will According to the graph, break-even price is $1.46 lose gain per unit.
A U.K importer has future payables of DM 20,000,000 in one year. The importer mustdecide whether to use option or a money market to hedge this position. The followinginformation is availableSpot rate £ 0.74 =DM1One year call optionExercise Price £ 0.76= DM1Premium £ 0.04 per DMOne year Put OptionExercise Price £ 0.77 =DMPremium £ 0.02 per DMSterling Deposit Rate 8% Per AnnumSterling Borrowing Rate 9% Per AnnumDM Deposit Rate 6% Per AnnumDM Borrowing Rate 7% Per AnnumForecast one-spot Rate £ 0.70 £0.77 £0.70Probability 25% 55% 20%Required:Assume that the importer’s objective is to minimize the sterling value of DM payables.Which of the hedging instruments would you recommend? Verify your answer by estimatingthe sterling cost for each type of hedge. Compare cost of hedging and non-hedging
The following is the spot and forward rates of dollar against Euro. Spot 30-day forward Euro/$ 0.85 0.90 You sign a contract for selling John Deere with the amount of 1 billion euros that will be delivered in 30days. You expect the 30day later the spot rates of dollar to be 0.75 with 50% chance and 0.95 with 50%. What is the expected dollar amount if no forward has been used? As a risk-neutral person, is it a good idea to use the forward?
Consider a one-period binomial model in which the underlying is at 65 Euros, and can go up 30% or down 22% each period. The risk-free rate is 8%. Determine the price of a European put option with exercise price of 70. Assume that the put is selling for 9 Euros. Demonstrate how to execute an arbitrage transaction and calculate the rate of return. Use 10000 puts.
As a dealer in currency, you buy put option on euros. The written strike price on the option of $1.2000/€ at a premium of 1.75¢ per euro ($0.0175/€). The expiration date six months from now. The option is for €150,000. Calculate profit or loss should you exercise before maturity at a time when the euro is traded spot at the following: (a). $1.15/€ (b). $1.20/€ (c). $1.30/€ (d). $1.40/€