A trader in the United States has a portfolio of derivatives on the Australian dollar with a delta of 456. The USD and AUD risk free interest rates are 5% and 8%. What position in a one-year futures contract on the Australian dollar creates a delta-neutral position? Question 12 options: Long 469.9 Short 469.9 Short 310 None of the above

A trader in the United States has a portfolio of derivatives on the Australian dollar with a delta of 456. The USD and AUD risk free interest rates are 5% and 8%. What position in a one-year futures contract on the Australian dollar creates a delta-neutral position? Question 12 options: Long 469.9 Short 469.9 Short 310 None of the above

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 27QA

See similar textbooks

Related questions

Q: 24. Suppose you are short a full S&P 500 futures contract at 2; 750. If the contract moves $500 per…

A: "As you have asked multiple questions in a single post, according to honoring guidelines only the…

Q: premium of an American call (put) option with a strike price of 70 is 0.77 (1.57) cents per 100 yen.…

A: A call option is a financial instrument that gives the holder the right, but not the duty, to…

Q: Suppose the standard deviation of monthly changes in the price of a commodity is 0.4. The standard…

A: Basis risk- is the risk associated with imperfect hedging due to the variables or characteristics…

Q: A U.K importer has future payables of DM 20,000,000 in one year. The importer must decide whether to…

A: Deposit Rate Borrowing rate Sterling 8% 9% DM 6% 7% Spot rate £ 0.74 =DM1 One…

Q: 1 Consider the euro call option for May with a strike price of $1.1200/€. This option gives the…

A: Options are financial instruments granting the holder the right, but not the obligation, to buy…

Q: A trader focuses principally on the Australian Dollar/Singapore Dollar (A$/S$) cross-rate. The…

A: An option refers to a derivative instrument that gives its holder the choice of buying/selling the…

Q: Suppose that the September 90-day Eurodollar futures contract has a price of $96.4 today. A firm…

A: (a) The price of the September 90-day Eurodollar futures contract can be used to determine the…

Q: Assume that the Japanese yen is trading at a spot price of 92.04 cents per 100 yen. Further assume…

A: Time value refers to the value of money or share at different point of time. The concept of time…

Q: Assume that interest rate parity holds and that the 90-day risk-free securities yield is 5% in the…

A: The question is based on the concept of Foreign Exchange.

Q: $24 Suppose that the price of a stock today is at $25. For a strike price of K = a 3-month European…

A: Using Put -Call Parity

Q: What is the rho of a European put option with the following parameters? As a reminder, rho is…

A: The rho (∂π/∂r) of a European put option is negative. This means as the risk-free interest rate (r)…

Q: Find the hedge ratio a 1-period at-the-money put option on ¥300,000. The spot exchange rate is ¥100…

A: Spot rate $1.00 =Yen 100Strike rate $1.00= Yen 100Both are same because put option is at the…

Q: Exchange Rate Se(5/6) $1.45 €1.00 F360 ($/) $1.48 - €1.00 Options: A. $159.22 B. $153.10 C. $439.42…

A: According to interest rate parity theory the differential in the interest rate of two countries…

Q: Assume the spot Swiss franc is $0.7085 and the six-month forward rate is $0.7120. What is the Value…

A: Spot rate (S) = $0.7085Strike price ( k) = $0.6885Interest rate (r) = 3.5%Standard deviation (…

Q: We define basis as futures price minus cash price. In general, what is the expected sign of the…

A: Basis on a contract is defined as the difference between the cash price and the futures price of the…

Q: Assume the spot Swiss franc is $0.7060 and the six-month forward rate is $0.7070. What is the Value…

A: Here, Stock Price $ 0.7060Strike Price $ 0.6860Time to Maturity6…

Q: Assume the spot Swiss franc is $0.7030 and the six-month forward rate is $0.7010. What is the Value…

A: Here, Spot Price is $0.7030 Six Month Forward rate is $0.7010 Strike Price is $0.6830 Risk Free Rate…

Q: Please answer it with no descriptions or details, with the question numbers and answers, the exact…

A: a. Long PositionSince you believe the spot price in June will be higher than the current futures…

Q: Assume the spot Swiss franc is $0.7045 and the six-month forward rate is $0.7040. What is the Value…

A: An option is a type of financial instrument that is based on the value of underlying securities,…

Q: An investor has purchased United States dollar call options, with an exercise price of A$1.15 and a…

A: Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…

Q: Reading futures prices. Refer to Exhibit 7.2 for futures prices.a. What is the March 2012 futures…

A: Currency futures are futures contracts traded through exchange that shows us the price of one…

Q: Assume the spot Swiss franc is $0.7070 and the six-month forward rate is $0.7090. What is the Value…

A: Here, Spot Price $ 0.7070Strike Price $ 0.6870Risk Free…

Q: Suppose we wish to borrow $10 million for 3 months, and that the quoted Eurodollar futures price is…

A: LIBOR rate refers to the interest rate which is considered by banks at a global level for lending…

Q: Assume that interest rate parity holds and that 90-day risk-free securities yield 3% in the United…

A: The conceptual formula used:

Q: Assume that interest rate parity holds. In both the spot market and the 90-day forward market, 1…

A: Forward rate is the price of the contract that will be executed at some future pre-specified date.…

Question

A trader in the United States has a portfolio of derivatives on the Australian dollar with a delta of 456. The USD and AUD risk free interest rates are 5% and 8%. What position in a one-year futures contract on the Australian dollar creates a delta-neutral position? Question 12 options:

Long 469.9

Short 469.9

Short 310

None of the above

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduce the question

VIEW

Step 2: Collect the date

VIEW

Step 3: Find the position in futures contract

VIEW

Solution

VIEW

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Find the price of an American call option on a futures if the current spot price is 30, the exercise price is 25, the futures price is 33.70, the risk-free interest rate is 6 percent, the spot asset can go up by 10 percent or down by 8 percent per period and the call expires in two periods, which is also when the futures expires. Show your working. A. 9.98 B. 8.70 C. 7.73 D. 8.22
Q roshu Suppose that a futures price is currently $42. A European call option and a European put option on the futures with a strike price of $40 and maturity in two months are both priced at $3 and $2 respectively in the market. The continuously compounded risk-free rate of interest is 5% per annum. Use the put-call parity condition to show that an arbitrage opportunity exists. Explain what position could be set up to exploit it. (Show all relevant calculations to support your argument. For example, your calculations should include what strategy an arbitrageur could follow in order to lock in a risk-free profit from the arbitrage strategy, as well as the arbitrageur’s net profit from the strategy).
A financial institution has the following portfolio of over-the-counter options on GBP (sterling, UK currency): Type Position Delta of Option Gamma of Option Vega of Option Call -1,000 0.5 2.2 1.8 Call -500 0.8 0.6 0.2 Put -2,000 Call -500 -0.40 0.70 1.3 0.7 1.8 1.4 A traded option is available with a delta of 0.3, a gamma of 1.7, and a vega of 0.8. To make the portfolio both gamma-neutral and delta-neutral, you will take a (long/short) position in the traded option. You will also take a (long/short) position in GBP. How many GBP (i.e. don't worry about L/S, just write how many GBP)? Assume that all implied volatilities change by the same amount so that vegas can be aggregated. Enter your answer rounded to the nearest integer, skip the currency sign. For example, if your calculation results in GBP 9,876.1234567, you only need to enter 9876
Consider the following data (interest rate is per period): S = 100; K = 75;R = 1.20 ; u = 1.5 ; d = .5. 1. What is the binomial price of a European call option with two periods until expiration? What is the price an American option with the same strike price and same time to expiration. Is there ever early exercise? 2. Show that the binomial option price for a European put option with two periods to go until expiration is 3.125. Show that the binomial price for an American put is 6.25. Can you conclude from the difference in prices alone that early exercise may be optimal? When is it optimal? 3. Use your answers to (i) and (ii) to verify that put-call parity holds for European options, but not for American options. Explain all answers in detail or step by step solution.
Calculate the European call and put option on the basis of the following data: Consider the following facts regarding Bank Windhoek, which is publicly traded on the Namibian Stock Exchange (NSX): The current stock price is N $18, the exercise price is N $16, the duration of the option is 180 days, the volatility is 35%, and the risk-free rate is 8%. Show all your calculations. 1. What is the value of the European call option? 2. What is the value of the European put option? 3. Comment on the Value for both the European call & put options. 4. Why is a Black Scholes Merton model used to price options
?Q.19 Consider a European call option with the following parameters: Assuming a risk-free annual rate of 8%, what is the probability that the option will be exercised in a risk- neutral world? (If required, use the table at the beginning of the document for statistical calculations.) Strike price USD 48 Expiration 6 months Underlying's Price USD 50 Annual volatility 25% A B C 0.70 0.5761 0.6443 D 0.3668
Use the futures contract data in the following table to answer the question. Open High Low Settle Change Interest New Zealand dollar CME NZD 100,000; NZD/USD Sept 0.6043 0.6175 0.6025 0.6048 -0.0007 34,157 Dec 0.6128 0.6195 0.6105 0.6126 0.0004 1,569 A trader goes LONG three December NZD futures and the spot rate at maturity is 0.6138. What is the value of her position?
Q1: A U.S.T-Bill is priced at 93.75 for 90 days. The actual futures price is.8977.435S984.375(ANSWER)8958.675S937.500 Q2:The target duration change of the portfolio sought is $2.5 million. The futures bonddelivery price is $80 and the underlying interest rate instrument is $100,000 percontract. A 100 bps interest rate change causes the futures price to change by 12% percontract. Assume the portfolio manager predicts a 25 bps change in interest rates.How many futures contracts should she buy or sell to reach her target duration? Selectthe closest answer.Buy 260 contracts.Buy 1.040 contractsSel1 260 contracts.Sel1 1.040 contracts(answer)
What is the implied volatility of corn futures prices from the following information concerning a European put-on corn futures: Briefly discuss. Current futures price 225 Exercise price 300 Put price 15 Time to maturity 6 months Risk Free 5%
Financial Mathematics Black-Scholes formula
Assume the spot Swiss franc is $0.7045 and the six-month forward rate is $0.7040. What is the Value of a six-month call and a put option with a strike price of $0.6845 should sell for in a rational market? Assume the annualized six-month Eurodollar rate is 3.50 percent. Assume the annualized volatility of the Swiss franc is 14.20 percent. Use the European option-pricing models to value the call and put option. This problem can be solved using the FXOPM.xls spreadsheet. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Option Call Put Value cents cents
Assume the spot Swiss franc is $0.7085 and the six-month forward rate is $0.7120. What is the Value of a six-month call and a put option with a strike price of $0.6885 should sell for in a rational market? Assume the annualized six-month Eurodollar rate is 3.50 percent. Assume the annualized volatility of the Swiss franc is 14.20 percent. Use the European option-pricing models to value the call and put option.