Alex is a currency speculator working for CIBC Currency funds in Toronto. He focuses nearlyall of his time and attention on the U.S. dollar /Canadian dollar ($/C$) exchange rate. Thecurrent spot rate is $1.3546/C$. He believes that the Canadian dollar (C$) will appreciate versusthe U.S. dollar over the coming 90 days. He can choose between the following options onCanadian dollar:OptionPut on C$Call on C$Strike price$1.400/C$$1.415/C$Premium$0.00045/C$$0.00048/C$(a) Should Alex buy a put option on Canadian dollars or a call option on Canadian dollars?(b) What is Alex's break-even price on the option purchased in part (a)(c) Using your answer for part (a) what is Alex's profit/loss if the spot rate at the end of 90 daysis $1.430/C$.d) Using your answer for part (a) what is Alex's profit/loss if the spot rate at the end of 90 daysis $1.400/C$

When a currency appreciates against the dollar, more dollars will be required to buy 1 unit of the…

Answered: (a) Should Alex buy a put option on…

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

See similar textbooks

Similar questions

Assume that Smith Corp. will need to purchase 200,000 British pounds in 90 days. A call option exists on British pounds with an exercise price of $1.68, a 90-day expiration date, and a premium of $.03. A put option exists on British pounds with an exercise price of $1.69, a 90-day expiration date, and a premium of $.03. Smith Corporation plans to purchase options to cover its future payables. It will exercise the option in 90 days (if at all). It expects the spot rate of the pound to be $1.76 in 90 days. Determine the amount of dollars it will pay for the payables, including the amount paid for the option premium. Group of answer choices $338,000 $342,000 $332,000 $344,000
Pls explain and show every step
Choose all expressions that accurately complete the statement below: Writing a European call option on £10,000 at a strike price of $1.80/£ and a premium of $0.02/£: Group of answer choices Obligates the optionholder to purchase £10,000 for $18,000 USD. Will be profitable for the seller when the price of the GBP exceeds the put-call parity rate. Obligates the writer to sell £10,000 on the expiration date if the optionholder chooses to exercise. Allows the optionholder to exercise the option at any point up to the expiration date. Earns the seller a premium of $200.
Petra is an option writer of Australian dollar (A$) options. In anticipation of an appreciation of the Australian dollar from its current level of $0.62 to $0.65, she has written a put option of A$150,000 with an exercise price of $0.635 and a premium of $0.015, If the spot rate at the option's maturity tums out to be $0.59, what is Petra's total profit or loss ( assuming the buyer of the option acts rationally)? O $4,500 $0 O $4,500 O $2,250
Doctor Dumpkins is bullish on the British pound so he sells a one-month put for $0.03. The strike price of the call is $1.24. On the expiration day, the spot price of the British pound is $1.27. Calculate the break-even price, the option payoff at expiration, and the net profit at expiration.
An option's cost (premium) before expiration reflects: A. The Expected Value of any dice roll or - The Expected Cost of buying dice to roll 1000 times B. The Expected Value based on the history of prices for that asset or - The Expected Cost of Hedging something similar C. The Expected Value the Owner of the option has already spent on it or - The Expected Cost of the buyer Hedging Through the option's Life D. The Expected Value of the Payoff at Maturity or - The Expected Cost of Hedging Through the option's Life
Nucor Corporation would like to use options to hedge a 18,324,000 Philippine Peso payable. Both call options and put options have the premium of $0.002 (per unit of Philippine Peso) and the exercise price $0.019 per Philippine Peso. The option will not be exercised until the expiration date, if at all. Should Nucor Corporation buy call options on Philippine Peso or buy put options on Philippine Peso? If the spot rate at the time of maturity is $0.017 per Philippine Peso, what is the total amount paid by the corporation if it acts rationally (after accounting for the premium paid)? Buy call options on phillipine peso 348,156 buy put options on phillipine peso 384,804 buy call options on phillipine peso 274,860 buy put options on phillipine peso 311,508
Three months ago, you sold a put option contract on Swiss franc with a strike price of $.60/SF and an option price of $.0060 per SF. Contract size is 10,000 SF. The option expires today when the value of Swiss franc is $.625. What is your total profit or loss on your investment? A. -$310 B. -$60 C. $0 D. $60
EBOOK Mike Suerth sold a call option on Canadian dollars for $0.01 per unit. The strike price was $0.76, and the spot rate at the time the option was exercised was $0.85. Assume Mike did not obtain Canadian dollars until the option was exercised. Also assume that there are 54,900 units in a Canadian dollar option. What was Mike's net profit on the call option? Use a minus sign to enter loss values, if any. Round your answer to the nearest dollar. -41175
Please show the steps and calculations
6. An investor took a long position on an American style call option on Tesla in June with an expiration date at the end of December in the same year. The premium is 38$/contract and the strike price is 1030$/share. One contract is 100 shares. Following the purchase, the price rose and in August the investor decided to exercise the option before the expiration date. How much did the investor with the short position in this option lose/win if the price of Tesla was in August 1073$/share? Draw the payoff diagram.
Give typing answer with explanation and conclusion

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS