capital controls, which investment would you choose? What are the risks associated with this trade?
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- You are trader at Tiger Capital. Todays market (bid-ask) rates for the number of USD per EUR are as follows:Spot rate: 1.1250 - 1.1254 USD = EUR 1.0 3 month forward rate: 1.1055 - 1.1060 USD = EUR 1.0 You think (i.e., have a hunch) that the EUR will weaken against the USD over the next 3 months and decide to do a trade today to exploit your hunch. Specifically, you sell 10 million EUR in the 3 month forward market today. You leave that position for 3 months. In 3 months from today, the spot exchange rate (number of USD per EUR) turns out to be 1.1100. How much profit or loss have you made? Give your answer to the nearest USD and if it is a loss, enter your amount with a MINUS sign.You live in a world where assets are priced by the CAPM. The following information is given to you regarding stock X. The expected payoff from the stock X=£105.00 Expected return of stock X = 18% Risk-free rate =5% Market Risk Premium = 9% Assume there are no other changes, except that the correlation between the returns of Stock X and the market becomes twice what it is currently. How would this change affect the current price of Stock X? Explain why the change of the correlation causes the observed change in the stock price. [hint: Provide a risk-based explanation]You have the following financial market information. You also have 1.88 million Australian dollar (A$) or 3.14 million Thai baht (THB) to make a profit due to covered interest arbitrage (CIA). Calculate the profit in A$ or THB if the CIA opportunity exists in the market. (enter the whole number without sign and symbol) Bid price Ask price A$0.0464 A$0.0682 THB spot rate THB one-year forward rate A$0.0425 A$0.0634 A$ spot rate THB22.4037 THB24.2606 A$ one-year forward rate THB27.6528 THB29.6897 Deposit rate Loan rate Interest rate on A$ 2.70% 4.58% Interest rate on THB 6.98% 8.23%
- How to solve this problem? plz solve it step by step with formulas, thank u! (which one is the risk-free rate? 1% or 2%) Options on Indexes and Currencies Example Suppose that the current exchange rate of AUD to CAD is 1.2 AUD/CAD and o = 0.4463. Find the price of American put option to sell CAD for AUD at K = $1.1 AUD/CAD before or at half a year from now. Assume that the risk-free rates in Canada and Australia are 2% and 1%, respectively. Find the price of the American call option today by using the two period binomial model.You took a long position on EUR when the prevailing market rate was EUR/USD: 1.3223-1.3227. After six months, you want to square your net FX position to take profits. Which of the following scenarios will yield you maximum profits? Scenario A: at EUR/USD 1.3245 – 1.3253 Scenario B: at EUR/USD 1.3230 – 1.3255 Scenario C: at EUR/USD 1.3231 – 1.3235 Scenario D: at EUR/USD 1.3247 – 1.3252 You took a short position on GBP when the prevailing market rate was GBP/USD: 1.3223-1.3227. After six months, you want to square your net FX position when the prevailing market rate is GBP/USD 1.3218-1.3221. How may pips did you earn? 5 pips 9 pips 2 pips .0009 pips If you want to square your long GBP position, at what rate are you going to sell GBP to maximize profits given GBP/USD quotes from three counterparties? BDO: 1.35-45 BPI: 1.40-55 SECB: 1.50-1.65 1.35 1.50 1.65 1.45 Given “RTB 5-12”, which of the following statements is correct? This is a 5-yr RTB issued in 2012 This…2. Consider a European put with an exercise (strike) price of 5.00 and with 6 months to maturity. The underlying asset has a volatility of 30% and the riskless rate is 5% per year. Estimate a numerical upper bound for the asset price S(t) (to nearest 0.01) at which an European put will sell below its intrinsic value of max(E – S(t), 0). (Compute P(S, t) and E – S(t) for some values of S(t) below the strike price. Compute P(S, t) to at least 3 decimal places.)
- An asset has a current price of $10 and has volatility of 0.35. The expected price in 9 months is $13. The US continuous risk free rate (rf) is 5.5% while the Philippine continuous risk-free rate (rd) is 6.5%. The value to the short and to the long would be? The price of a European stock is €50 and it as an expected price of €65 in 8 months. The stock has a variance of 0.36. The European continuous risk free rate is 4.5% while the US continuous risk free rate is 3.2%. The value to the short and to the long would be?You are an investor in the world where short-selling assets is prohibited. Suppose that the price of asset X in period 0 is $200. This asset will pay a dividend of $8 one year from now in period 1. Let the riskless interest rate from 0 to period q be 5%.Assume the price for a future contract delivery in period 1 is $210. a) Can you make an arbitrage profit when $210 is the price? If so, state specifically what financial transaction? b) Now, assume the price for a futures contract with delivery in period 1 is K190. Can you make an arbitrage profit when this is the price? If so, state specifically what financial transaction you would make in 0 and period 1 to realize a profit. If not, explain?You are considering a European put option and a European call option on ABC Ltd and have available the following information. The put option with an exercise price of $15 and time to maturity of 60 days is priced at $2.00. The call option with the same exercise price and time to maturity is priced at $3.00. The underlying asset price is $15. The risk-free rate is 2% per 60 days. Could an arbitrage profit be earned? If so, how much the arbitrage profit is? Show your works (Hint: use discrete put-call parity equation and consider two scenarios for stock price at maturity of the options: $10 or $20).
- Determine the risk-neutral value of a eight-month European put option to sell a FLB (First Local Bank) share for a price of R400 when the current price is R420, the interest rate is 10%, and the volatility of the security is 0.28? WITHOUT USING EXCELAn analyst believes that inflation is going to increase by 2.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Calculate Happy Corp.'s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst's prediction. Happy Corp.'s new required rate of return is Tool tip: Mouse over the points on the graph to see their coordinates. REQUIRED RATE OF RETURN (Percent) 1.2 1.6 2.0 0.8 RISK (Beta) New SML ? The SML helps determine the risk-aversion level among investors. The higher the level of risk aversion, the the slope of the SML. Which of the following statements best describes the shape of the SML if investors were not at all risk averse? O The SML would be a horizontal line. O The SML would have a negative slope. O The SML would have a positive slope, but the slope would be steeper than it would be if…You buy an American call option priced at $0.025/€ on €225,000 at a strike price of $1.50/€. You wait until expiration date where the observed price is $1.40/€. What is total net cash flow involved at the end of this investment whether you exercise or do not exercise this option? [Ignore TVM]