G Revisit Choose the best option Duestion 1 • Buying oil producer stocks and selling airtine stocks O Buying US Dollar and selling Euro O Seling oil producer stocks and buying airline stocks O Seling US Dollar and buying Euro Alarge retinery in tSaud Arabia is hit by an explosion. Which trade would most likely be pruttatle Clear Response
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- ¥ Question Completion Status: QUESTION 3 Mr. Adel Owns 200 sahres in XYZ LTD. ahe fears that the price might decline next montha and he wants to make a hedge against this risk. What option shall he byu? O 1. Future Option O 2. Call option 3. Forward Option 4. Put option QUESTION 4 The risk that the due to global warming there might be hurricane in Bahrain. This is risk is part of - O 1. Enterprise risk management 2. Financial risk management 3. Speculative risk amangement 4. General risk amangement Click Save and Submit to save and submit. Click Save All Answers to save all answers.Imagine a situation where European options on some underlying stock have the following relationship. p+S > c+ K*exp(-rT). (a) Describe the arbitrage opportunities that are available with an example. (b) Now change those options to American-style options. Does the arbitrage strategy still work? Explain your answer.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 = $1.1 AUD/CAD before or at half a year from now. Assume that the risk-free rates in Canada and Australia are 2% and 1%, respectively. Find the price of the American call option today by using the two period binomial model.
- D3 show the solution in details Use the binomial option pricing model to find the value of a call option on £10,000 with a strike price of €12,500. The current exchange rate is €1.50/£1.00 and in the next period the exchange rate can increase to €2.40/£ or decrease to €0.9375/€1.00 (i.e. u = 1.6 and d = 1/u = 0.625). The current interest rates are i€ = 3% and are i£ = 4%. Choose the answer closest to yours. the answer is A) €3,275? Q.17 Donat Bank from Slovenia recently started trading in FX options: Senior management wants to receive reports about risks arising from those trading activities and wants from its risk management unit explanations regarding the techniques used to measure risk. Which technique(s) is (are) most appropriate in this case? A B C D Delta normal Full revaluation Both A and B None of the above?Q.19 Consider a European call option with the following parameters: Assuming a risk-free annual rate of 8%, what is the probability that the option will be exercised in a risk- neutral world? (If required, use the table at the beginning of the document for statistical calculations.) Strike price USD 48 Expiration 6 months Underlying's Price USD 50 Annual volatility 25% A B C 0.70 0.5761 0.6443 D 0.3668
- If S($/£)=$1.25/£; F360($/£)=$1.10/£; i$=7.04%; if=11.50%, to hedge foreign exchange risk involved in doing interest arbitrage: O £-based investors should buy GBP in the forward market O £-based investors should buy USD in the forward market O $-based investors should buy GBP in the forward market O $-based investors should buy USD in the forward marketWhich of the following statements about European option contracts is true? Question 2Answer a. Typically American options are cheaper than otherwise similar European options due to the uncertainty regarding the date of exercise. b. The price of an option can be obtained by computing the true probabilities of each state of nature, working out the expected option payoff across those states and then discounting back to the present. c. A long call position and a short put position both involve buying the underlying and so are equivalent d. One can synthesise a long forward position in the underlying by being long a call and short a put46 FDI often involves the establishment of new production facilities in foreign countries such as Honda's Ohio plant. ut of Select one: O True O False 47 The world beta" measures the ut of Select one: O a risk of default and bankruptey. O b risk-adjusted performance. O c.unsystematic risk. O d sensitivity of returns on a security to world market movements.
- Problem 4c: State whether the following statements are true or false. In each case, provide a brief explanation. c. An investor would like to purchase a European call option on an underlying stock index with a strike price of 210 and a time to maturity of 3 months, but this option is not actively traded. However, two otherwise identical call options are traded with strike prices of 200 and 220 respectively, hence the investor can replicate a call with a strike price of 210 by holding a static position in the two traded calls.Suppose that a European call option to buy a share for $100.00 costs $5.00 and is held untilmaturity. Under what circumstances will the holder of the option make a profit? Underwhat circumstances will the option be exercised? Draw a diagram illustrating how the profitfrom a long position in the option depends on the stock price at maturity of the option. Suppose that a European put option to sell a share for $60 costs $8 and is held untilmaturity. Under what circumstances will the seller of the option (the party with the shortposition) make a profit? Under what circumstances will the option be exercised? Draw adiagram illustrating how the profit from a short position in the option depends on thestock price at maturity of the option.Part I. Explain why an American call options on futures could be optimally exercised early while call options on the spot can not be optimally exercised. Assume that there is no dividend. Explain how to use call options and put options to create a synthetic short position in stock. Part II. Indicate whether each of the following two statements below is true, false or uncertain and justify your response. It is theoretically impossible for an out-of-money European call and an in-the-money European put to be trading at the same price. Both options are written on the same non-dividend paying stock. A 3-month European put option on a non-dividend-paying stock is currently selling for $3.80. The stock price is $48.0, the strike price is $51, and the risk-free interest rate is 6% per annum (continuous compounding). There is no arbitrage opportunity in this scenario.