(Put-call symmetry) Let $, denote the price of 1 dollar in euro at time n and hence € = 1/$, the price of 1 euro in dollar. On the market there is a liquidly traded call C on 1 dollar with maturity N and strike K, i.e. with payoff CN = ($N - K)* euro. Moreover, there is a liquidly traded put P on 1 euro with maturity N und strike in the US market, i.e. with payoff PN = ( - €N)* dollar. What can you say about the relation of the price processes C and P if there is no arbitrage?
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- 2. Suppose the exchange rate of euro at current spot market is $1.25/€. If a call option has a strike price of $1.28/€ then we can say this option is a) inthemoney b) outofthemoney c) atthemoney d) past breakeven 3. Suppose the exchange rate of euro at current spot market is $1.25/€. If a put option has a strike price of $1.18/€ then we can say this option is a) inthemoney b) outofthemoney c) atthemoney d) past breakeven 4. According to our class discussion, suppose a U.S. based real estate developer is participating in a bid competition for a land in London. What of the followings can provide the best protection when Pound is expected to appreciate a) Call options b) buy futures c) sell forwards d) buy forwards 5. Which of following activities dominates foreign exchange transactions a) multinational corporations buying and selling foreign exchange b) importers and exporters buying and selling foreign exchange c) banks buying and selling foreign exchange d)…Suppose the exchange rate of euro at current spot market is $1.25/€. If a put option has a strike price of $1.18/€ then we can say this option is a) inthemoney b) outofthemoney c) atthemoney d) past breakevenAssume you can exchange $1 for either £1.0 or €0.50 in the U.S. In the London market, you can exchange £1 for €0.52. This situation creates an opportunity to profit immediately from which one of the following? A. Futures arbitrage B. Currency hedge C. Interest rate swap D. Absolute purchasing power parity E. Triangle arbitrage
- Suppose the exchange rate is $1.71/€. Let r$ = 2%, r€ = 7%, u = 1.16, d = 0.78, and T = 2. Using a 2-step binomial tree, calculate the value of a $1.70-strike American call option on the euro. a.$0.1253 b. $0.1220 c. $0.1118 d. $0.1196 e. $0.1172OMR is quoted against USD and EURO. Under which of the following condition will the trader have a possibility of arbitrage? a. When the calculated cross rate of USD/EURO is different from Quoted cross rate b. When calculated cross rate of OMR/EUR is different from Quoted cross rate c. When calculated cross rate of OMR/USD is greater than quoted rate d. When calculated cross rate of USD/EUR is equal to Quoted cross rate Which of the following is true about derivatives? a. Value of derivative is derived from predetermined asset b. The terms and conditions are flexible under derivative trading c. Derivative markets are suitable for low risk investors d. Risk on derivatives market are always low Which of the following condition may indicate that OMR has depreciated to EUR? a. Spot rate of EUR/OMR is equal to future rate of OMR/EUR b. Spot rate of EUR/OMR is less than future rate of EUR/OMR c. None d. Future rate of EUR/OMR is equal to spot rate…Consider a European call and a European put with the same strike price and time to maturity. Show that they change in value by the same amount when the volatility increases from a level ₁ to a new level 2 within a short period of time. (Hint: Use put-call parity.)
- Q2) Suppose the current one-year euro swap rate y0[0, 1] is 1.74%, and the two-yearand three-year swap rates are 2.24% and 2.55% respectively. Euro swap rates are quotedwith annual payments and 30/360 daycount (thus α = 1). A hedge fund(HF) executes the following two trades with a dealer:1(1) The HF pays fixed and receives floating on e100 million notional of a one-year swap atthe forward swap rate.(2) The HF receives fixed and pays floating on e100 million notional of a three-year swapat the forward swap rate.Assume bid-offer costs are negligible.a) After one year, what net cashflow has the dealer paid to (or received from) the HF?b) Suppose after one year, one-year and two-year euro swap rates are unchanged. What isthe current value of the remaining part of the HF trade?c) Suppose after one year, the one-year euro swap rate is unchanged but the two-year euroswap rate is now Y%. What value of Y gives a total zero profit on the trade (at T = 1)?d) Do you like the trades the HF…Consider the following money market information being quoted: Which of the following statements is true? Particulars GBP Interest Rate THB Interest Rate Spot Rate 1-year Expected Spot Rate Bid Rate 6.100% 10.550% THB5.6601/GBP THB5.9037/GBP C. Ask Rate 6.125% 10.625% THB5.6622/GBP THB5.9961/GBP a. There is an arbitrage which can only be made by initially borrowing GBP and then investing in THB. b. More than one of the options in this question are correct. The THB is selling at a premium to the GBP in the future. O d. There is an arbitrage which can only be made by initially borrowing THB and then investing in GBP.Suppose you have the following spot exchange rates: USD/AUD 0.5300 AUD/EUR 1.6428 USD/EUR 0.8782 a) Calculate the US dollar profit (per 1 USD), if any, on a three-point arbitrage. b) Calculate AUD profit (per 1 AUD), if any, on a three-point arbitrage. c) How can you explain the answers in (1) and (2)?
- 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.Assume that interest rate parity holds. In the spot market1 Japanese yen = $0.009144, while in the 90-day forward market 1 Japanese yen = $0.009184. In Japan, 90-day risk-free securities yield 2%. What is the yield on 90-day riskfreesecurities in the United States?) In another case are these quotes: Spot rate €1.2562/£; 1 month forward €1.2662/£ Which of the two currencies is trading at forward discount? And why