A call option allows the holder to buy USD100,000 at an exercise exchange rate of 1.8000 (AUD/USD). If the premium paid is 0.005 Australian cents for each USD, calculate the net payoff at the following spot exchange rates: (a) 1.8020 (2.5 marks); (b) 1.8360 (2.5 marks); and (c) 1.7970 (2.5 marks). At what exchange rate will the holder break even?

A call option allows the holder to buy USD100,000 at an exercise exchange rate of 1.8000 (AUD/USD). If the premium paid is 0.005 Australian cents for each USD, calculate the net payoff at the following spot exchange rates: (a) 1.8020 (2.5 marks); (b) 1.8360 (2.5 marks); and (c) 1.7970 (2.5 marks). At what exchange rate will the holder break even?

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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The one-year interest rate in Australia is given as 0.5% and the one year interest rate in New Zealand is given as 1%. The spot rate of the New Zealand dollar is A$0.95. You will receive 10,000 New Zealand dollars in one year.(a) Using the international Fisher effect, calculate the expected change in the exchange rate for the New Zealand dollar.(b) Using your answer to (a), calculate the amount of Australian dollars you will receive when converting the New Zealand dollars to Australian dollars in one year at the spot rate at that time.
D6) The forward exchange rate of 55 days is 1.21 USD/Euro while the current exchange rate is 1.22 USD/Euro. The annual interest rate of USA is 1.13% and of Eurozone is 1.18%. Calculate and show me how you have solved it the cost of the term act and choose one of the following: a. -5.365% b. 5.365% c. -0.819% d. 8.2%
In alternative universe, the Australian government has decided to enter into a target-zone arrangement with the United States. Australian firm K-Roo has a USD 150,000 payable due in 180 days. Assuming the current exchange rate is AUD1.44/USD, the central rate for the USD/AUD is set at 0.5 USD per AUD, and the currencies are allowed to fluctuate with a 10% band on either side, what is the maximum possible amount (in terms of AUD) that K-Roo could lose due to changes in the future exchange rate? Select one: a. 114000.00 b. 101416.67 c. 133500.00 d. 21600.00 e. -54000.00
Suppose that the one-year interest rate is 5.0 percent in the United States and 3.5 percent in Germany, and that the spot exchange rate is $1.12/€ and the one-year forward exchange rate, is $1.16/€. Assume that al of these rates will be used and a speculator can borrow $1,000,000 or €1,000,000. This is an example whether Uncovered Interest Arbitrage is possible O This is an example of whether Purchasing Power Parity holds This is an example whether fisher effect holds O None of the above This is an example whether Covered Interest Arbitrage is possible
Country Currency Lodging Food Miscellaneous Exchange rate Total € (₁₂₁) € Germany: Euros USD EUR 658.27 718.44 195.00 761.42 831.02 225.56 1818.00 1.1567 USD/EUR INR India: Rupees USD 25,234.90 16,107.38 5,330.00 413.10 ¥ 263.68 ¥ 87.25 ¥ 764.03 0.01637 USD/INR China: Yuan USD CNY 4,983.89 2,507.29 1,730.00 749.08 376.85 260.02 1385.94 0.1503 USD/CNY
The current spot rate is $0.80/A$ and the six-month forward rate is $0.7775/A$. One-year interest is 8% in the United States and 9% in Australia. An investor can borrow up to $ 500,000 or A$625,000, the dollar equivalent at the spot rate. a) Determine if IRP is holding between Australia (A$) and USA ($) b) If IRP does not exist, explain briefly how an investor would realize certain arbitrage profit in U.S. dollar terms. c) Explain (briefly) how IRP will be restored as a result of the arbitrage transactions investors carry out above. (Hint to answer : As more investors buy _____(A$ or $) at spot price, _____(A$ or $) will appreciate and hence, the spot price $0.80/A$ will increase so that the interest rate parity is restored.)
Suppose the exchange rate is $1.71/€. Let r$ = 2%, r€ = 7%, u = 1.16, d = 0.78, and T = 2. Using a 2-step binomial tree, calculate the value of a $1.70-strike American call option on the euro. a.$0.1253 b. $0.1220 c. $0.1118 d. $0.1196 e. $0.1172
In a currency swap, using the information below, can you calculate the quarterly payments that should be made in Australian dollars? The exchange rate is 1.3 Australian dollars per one US dollar and the notional amount in Australian dollars is $100,000.00 TTM PVF 90 180 270 360 Singapore Dollars 0.98 0.94 0.93 0.89 PVF US Dollars 0.99 0.98 0.97 0.96 Please round your answer to the nearest three decimals. Do not type the $ symbol.
The current spot exchange rate is AUD 1.4925 = USD1. The Australian risk-free rate is 1.5% p.a. compounded continuously, whereas the US risk-free rate is 2.2% p.a. compounded continuously. The no-arbitrage price on a 9-month forward contract written on the exchange rate is likely to be _______________ AUD 1.485 / USD USD 0.667 / AUD AUD 0.674 / USD AUD 1.500 / USD
A newspaper provides spot exchange rate of $1 = £.7555 and 1-year forward rate of $1=£.7755. You’ll also need to use the additional information provided in the problems. Jay has Euro 1,000 wishes to trade out of euro and into Pound. The USD-Euro exchange rate is quoted as $1.30 = Euro1.00. How much Pound will the customer get, 2 decimal places?
For a call option of CN¥100,000 with the $0.16 exercise price and $0.0005 premium, When the spot exchange rate is $0.1602, the profit from exercising the call (in total) is US$

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