Calandra Panagakos works for CIBC Currency Funds in Toronto. Calandra is something of a contrarian - as opposed to most of the forecasts, she believes the Canadian dollar (CS) will appreciate versus the U.S. dollar over the coming 90 days. The current spot rate is CS/S-0.6750. Calandra may choose between 3 the following options on the Canadian dollar 4 5 Option 6 Put on C$ 7 Call on C$ 8 Strike Price $0.7000 $0.7000 9a Should Calandra buy a put on Canadian dollars or a call on Canadian dollars? 10 b. What is Calandra's breakeven price on the option purchased in part (a)? Premium $0.00003/SS $0.00049/S$ c. Using your answer from part (a), what is Calandra's gross profit and net profit (including premium) if the spot rate at the end of 90 days is indeed 11 12 $0.76007 13 14 d. Using your answer from part (a), what is Calandra's gross profit and net profit (including premium) if the spot rate at the end of 90 days is $0.8250? 15 16 Assumptions 17 Current spot rate (CS/US$) 18 Days to maturity 19 20 Option choices on the Canadian dollar. 21 Strike price (CS/USS) 22 Premium (CS/USS) 23 Values 50.6750 Call option $0.7000 50.00049 Put option $0.7000 $0.0003 24 a) Which option should Calandra buy? 25 26 27 28 b) What is Calandra's breakeven price on the option purchased in part a)? 29 30 Strike price 31 Plus premium 32 Breakeven 33 50.7000 0.00049 50.7905 34) What is Calandra's gross profit and net profit (including premium) if the ending spot rate is CS/S-0.7600? 35 36 37 38 Spot rate 39 Less strike price 40 Less premium 41 Profit Gross profit (CS/USS) 50.7600 (0.7000) 50.0600 Net profit (CS/USS) $0.7600 (0.7000) (0.00049) 50.05951

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Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.