Jasper Pernik is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Jasper thinks the yen will move to ¥128.00/$ in the next six months. If Jasper buys $100,000 worth of yen at today's spot price and sells within the next six months at ¥128/$, he will earn a profit of: OA. $101,460.94. OB. $1460.94. OC. $146.09. OD. nothing; he will lose money

Jasper Pernik is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Jasper thinks the yen will move to ¥128.00/$ in the next six months. If Jasper buys $100,000 worth of yen at today's spot price and sells within the next six months at ¥128/$, he will earn a profit of: OA. $101,460.94. OB. $1460.94. OC. $146.09. OD. nothing; he will lose money

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

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Samuel Samosir works for Peregrine Investments in Jakarta, Indonesia. He focuses his time and attention on the U.S. dollar/Singapore dollar ($/S$) cross-rate. The current spot rate is $1.39/S$. After considerable study, he has concluded that the Singapore dollar will depreciate versus the U.S. dollar in the coming 90 days, probably to about $1.35/S$. He is considering trading options to profit and has the following options on the Singapore dollar to choose from: Option choices on the Singapore dollar: Strike price (US$/Singapore dollar) Premium (US$/Singapore dollar) Call on S$ $1.34 $0.075 Put on S$ $1.37 $0.006 Samuel decides to sell call options in Singapore dollars. What is Samuel's (net) profit/loss (in dollars) per option if the spot rate is $1.56/S$ at maturity?
The treasurer of a major U.S. firm has $22 million to invest for three months. The interest rate in the United States is .22 percent per month. The interest rate in Great Britain is .27 percent per month. The spot exchange rate is £.622, and the three-month forward rate is £.624. Ignore transaction costs. What would be the value of the investment in three months if the money is invested in the U.S. or if it is invested in Great Britain? (Do not round intermediate calculations and enter your answers in dollars, not in millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) U.S. Great Britain
Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced €11.00 million payable in six months. Currently, the six-month forward exchange rate is $1.15 per euro and the foreign exchange adviser for Cray Research predicts that the spot rate is likely to be $1.10 per euro in six months. Required: a. What is the expected gain/loss from a forward hedge? Note: A Negative value should be indicated with a minus sign. Do not round intermediate calculations. Round your final answer in whole dollars not in millions. b. If you were the financial manager of Cray Research, would you recommend hedging this euro receivable? c. Suppose the foreign exchange adviser predicts that the future spot rate will be the same as the forward exchange rate quoted today. Would you recommend hedging in this case? d. Suppose now that the future spot exchange rate is forecast to be $1.22 per euro. Would you recommend hedging? a. b. Would you recommend hedging this euro…
Suppose that gold costs USD 330 an ounce in the United States and GBP 220 an ounce in UK. What must be the GBP / USD rate? •Suppose that gold prices rise by 2% in US and by 5% in UK. What will be the price of gold in the two currencies atthe end of the year? What must be the exchange rate at the end of the year? •Show that at the end of the year each dolar buys 3% more GBP as predicted in PPP. •What are current gold prices in US and UK or EU?
Ruth trades currencies for Industrial and Commercial Bank of China (ICBC) in Beijing. She is currently interested in the U.S. dollar/Australian dollar ($/A$) cross-rate. The current spot rate is $0.7200/A$. Ruth believes that the Australian dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about $0.8100/A$. She has the following options on the Australian dollar to choose from: Option Put on A$ Call on A$ Strike Price $0.7500/A$ $0.7500/A$ Premium $0.00004/A$ $0.00048/A$ a. Should Ruth buy a put on Australian dollars or a call on Australian dollars? b. What is Ruth's breakeven price on the option purchased in part (a)?
Suppose your company imports computer motherboards from Singapore. The exchange rate is $1.4073 per Singapore dollar. You have just placed an order for 35,062 motherboards at a cost to you of S158 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $113 each. Calculate your profit if the exchange rates goes down by 14.51% over the next 90 days.
IBM purchased computer chips from NEC, a Japanese electronics concern, and was billed ¥250 million payable in three months. Currently, the spot exchange rate is #105/$ and the three-month forward rate is ¥100/$. The three-month money market interest rate is 8 percent per annum in the United States and 7 percent per annum in Japan. The management of IBM decided to use a money market hedge to deal with this yen account payable. a. Explain the process of a money market hedge and compute the dollar cost of meeting the yen obligation. b. Conduct a cash flow analysis of the money market hedge.
Alex is a currency speculator working for CIBC Currency funds in Toronto. He focuses nearly all of his time and attention on the U.S. dollar /Canadian dollar ($/C$) exchange rate. The current spot rate is $1.3546/C$. He believes that the Canadian dollar (C$) will appreciate versus the U.S. dollar over the coming 90 days. He can choose between the following options on Canadian dollar: Option Strike price Premium Put on C$ $1.400/C$ $0.00045/C$ Call on C$ $1.415/C$ $0.00048/C$ Should Alex buy a put option on Canadian dollars or a call option on Canadian dollars?
Samuel Samosir works for Peregrine Investments in Jakarta, Indonesia. He focuses his time and attention on the U.S.dollar/Singapore dollar ($/S$) cross-rate. The current spot rate is $1.39/S$. After considerable study, he has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about $1.44/S$. He is considering trading options to profit and has the following options on the Singapore dollar to choose from Option choices on the Singapore dollar: Strike price (US$/Singapore dollar) Premium (US$/Singapore dollar) Call on S$ $1.371 $0.047 Put on S$ $1.37 $0.006 Samuel decides to buy call options in Singapore dollars. What will be Samuel's profit/loss if the ending spot rate is $1.286/S$ in 90 days? Keep all decimal places.
Samuel works for Peregrine Investments Indonesia. He focuses his time and attention on the U.S. dollar/Singapore dollar ($/S$) cross-rate. The current spot rate is $1.39/S$. After considerable study, he has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about $1.44/S$. He is considering trading options to profit and has the following options on the Singapore dollar to choose from: Option choices on the Singapore dollar: Call on S$ Put on S$ Strike price (US$/Singapore dollar) $1.35 $1.45 Premium (US$/Singapore dollar) $0.047 $0.065 Samuel decides to sell put options on Singapore dollars. What is Samuel's break-even spot rate at maturity?
Samuel Samosir works for Peregrine Investments in Jakarta, Indonesia. He focuses his time and attention on the U.S. dollar/Singapore dollar ($/S$) cross-rate. The current spot rate is $1.39/S$. After considerable study, he has concluded that the Singapore dollar will depreciate versus the U.S. dollar in the coming 90 days, probably to about $1.35/S$. He is considering trading options to profit and has the following options on the Singapore dollar to choose from: Option choices on the Singapore dollar: Call on S$ Put on S$ Strike price (US$/Singapore dollar) $1.50 $1.37 Premium (US$/Singapore dollar) $0.064 $0.006 Samuel decides to sell call options in Singapore dollars. What is Samuel's (net) profit/loss (in dollars) per option if the spot rate is $1.54/S$ at maturity?
Samuel Samosir works for Peregrine Investments in Jakarta, Indonesia. He focuses his time and attention on the U.S. dollar/Singapore dollar ($/S$) cross-rate. The current spot rate is $1.39/S$. After considerable study, he has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about $1.44/S$. He is considering trading options to profit and has the following options on the Singapore dollar to choose from: Option choices on the Singapore dollar: Strike price (US$/Singapore dollar) Premium (US$/Singapore dollar) Call on S$ $1.36 $0.077 Put on S$ $1.37 $0.006 Samuel decides to buy call options in Singapore dollars. What is Samuel's Break-Even spot rate at maturity? Keep the sign and all three decimal places.

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