Suppose a Japanese company, Matsushita, has to sell Can$ 50 m sometime during the next 6 months, and would like tolock in a minimum ¥ value. The price of a put option with a strike price of K = ¥ 230/$ is ¥ 4/$What is the actual amount that they receive if the spot rate at the end of 3 months is 245/$?Since ST >K, the options areworthless and Matsushita can do better by selling at the market rate of ¥ 245/$, rather than the exercise price of ¥ 230/$.Thus, their total receipts will beCV234/$C¥230 / $C¥241/$C¥4/$

Put options is derivative product that gives the option to sell the currency at the given rate but…

Answered: Suppose a Japanese company, Matsushita,…

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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Due to high uncertainty in markets, the only quotes that are available for interest rates are 1-month quotes, that is, interest rates for one-month horizons. The monthly interest rates in the USA and Britain are, respectively, 1% and 1.5%. You seek to purchase the British Pound one-year, that is, 12-month forward. Given that the spot rate for the British Pound today is, $1.48 per pound, assuming satisfaction of Interest Rate Parity, what do you expect the forward quote for the delivery, in one year, of British Pounds to be?
Suppose you buy GM put for P3, which matures in two months with a strike price of P60. GM is currently trading at P62.75. If the stock price of GM falls to P57 on the expiration date of the option, the rate of return of your put is at what amount?
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Suppose that right now, the market price of one Chinese yuan (CNY) is USD 0.15; that is, one can purchase or sell CNY1.00 for USD0.15. The proportional standard deviation for CNY in terms of USD is 20%. The Chinese riskless return rate over a two-year period is projected to be 8%; U.S. ratesover the same period are 2%. What is the dollar value of a two-year European put on a single yuan if the exercise price of the put is USD0.20?
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