Yize Chen trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar (USD) to Singapore dollar (SGD) cross-rate. The current spot rate is USD 0.6000 = SGD 1.00. After considerable study, she has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about USD 0.7000 = SGD 1.00. She has the following options on the Singapore dollar to choose from: Should Yize buy a put on Singapore dollars or a call on Singapore dollars? What is Yize’s break-even price on the option purchased in part (a)? Using your answer from part (a), what are Yize’s gross profit and net profit (including premium) if the spot rate at the end of 90 days is indeed USD0.7000? Using your answer from part (a), what are Yize’s gross profit and net profit (including premium) if the spot rate at the end of 90 days is USD0.8000
Yize Chen trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar (USD) to Singapore dollar (SGD) cross-rate. The current spot rate is USD 0.6000 = SGD 1.00. After considerable study, she has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about USD 0.7000 = SGD 1.00. She has the following options on the Singapore dollar to choose from: Should Yize buy a put on Singapore dollars or a call on Singapore dollars? What is Yize’s break-even price on the option purchased in part (a)? Using your answer from part (a), what are Yize’s gross profit and net profit (including premium) if the spot rate at the end of 90 days is indeed USD0.7000? Using your answer from part (a), what are Yize’s gross profit and net profit (including premium) if the spot rate at the end of 90 days is USD0.8000
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Yize Shen at Sumatra Funds. Yize Chen trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar (USD) to Singapore dollar (SGD) cross-rate. The current spot rate is USD 0.6000 = SGD 1.00. After considerable study, she has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about USD 0.7000 = SGD 1.00. She has the following options on the Singapore dollar to choose from:
- Should Yize buy a put on Singapore dollars or a call on Singapore dollars?
- What is Yize’s break-even price on the option purchased in part (a)?
- Using your answer from part (a), what are Yize’s gross profit and net profit (including premium) if the spot rate at the end of 90 days is indeed USD0.7000?
- Using your answer from part (a), what are Yize’s gross profit and net profit (including premium) if the spot rate at the end of 90 days is USD0.8000?
Transcribed Image Text:Option
Put on
SGD
Call on
SGD
Strike Price
USD0.6500=
SGD1.00
USD0.6500=
SGD1.00
Premium
USD0.00003
per SGD
USD0.00046
per SGD
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