An increase in which of these factors increases the premium of a currency call option? Check all that apply: Spot exchange rate Volatility of the currency Strike price Time to expiration

Below is a chart with profit/loss on the vertical axis, and the $/£ exchange rate on the horizontal axis.  The solid line shows the profit/loss schedule for a:     Question 8 options:   put option in isolation (e.g. used for speculating that the pound will depreciate)   None of the above   covered call option (a call option is used as a hedge)   covered put option (a put option is used as a hedge)

Explain with examples how to measure exchange rate risk for long positions and short positions Notes : Use your own numbers in making calculations!

answer for part D

Assume a company needs to hedge payables. Which of the following conditions has to be met so a company would choose the options hedge? The break-even spot exchange rate is greater than the forward exchange rate. The break-even spot exchange rate is less than the forward exchange rate. The break-even spot exchange rate is less than the spot exchange rate. The break-even spot exchange rate is greater than the spot exchange rate.

h) discuss the relationship between the prices of puts, calls, and forward/futures contracts on the same underlying asset using the put-call-forward/futures parity.      i) discuss the boundary conditions on the prices of American and European call option contracts on futures.       j) explain and discuss the use of interest rate parity in pricing foreign currency forwards and futures.      k) describe how spot prices are determined using the cost-of-carry model.

A(n). OOO futures hedge is most likely to result in ongoing payments over the life of the foreign exchange instrument. options money market forward

A 3. Briefly explain below the different theories about the irrelevance/relevance of exchange rates. Think and discuss about all the firms' factors that are affected by movements in exchange rates.

To hedge payables, the firm will purchase a currency call option on the payable foreign currency. The firm can use the call option to buy foreign currency at a specified price. Why should the company, in this case, purchase a call option than a Forward contract? Maybe to make it easy on me, you can illustrate the answer by highlighting the situations suitable for options and Forward contracts. For example, "when this situation occurs....., then that hedging we should use .... because of XYZ reasons/effects on profitability".

Interest Rate Swap: A company that expects interest rates to rise and wishes to exchange its floating interest rate for a fixed rate would: Select one OA. Enter into a payer swap B. Enter into a receiver swap C. Sell interest rate futures OD. Buy interest rate futures