The current spot rate of Singapore dollar (SGD) is 0.50 USD/SGD. You bought a six-month European put option on SGD which has strike price of 0.55 USD/SGD and a premium 0.01 USD/SGD. Each put option contract trades 1,000,000 Singapore Dollars. Calculate your gain/loss in the put option contract if the market exchange rate turns out to be 0.52 USD/SGD on the contract maturity date.     A. 20,000 USD gain.     B. 10,000 USD loss.     C. 40,000 USD gain.     D. 10,000 USD gain.

Q: A speculator is considering the purchase of a 6-month Swiss franc call option on 50,000 francs with…

A: Currency = 50,000 FrancsStrike price = $1.0885/SFrPremium = $0.0075/SFrSpot price =…

Q: An investor has $10m to invest and has the following options: 1) depositing it in a US bank account…

A: Exchange rate: It is the value of a currency that is exchanged with another currency.

Q: a) What is your cost of buying SF5,000 with SF call option used for hedging?    b) Compared with…

A: Your home currency is USD while you need to pay in SF for your trip to Switzerland. For this, you…

Q: premium of an American call (put) option with a strike price of 70 is 0.77 (1.57) cents per 100 yen.…

A: A call option is a financial instrument that gives the holder the right, but not the duty, to…

Q: UCD (U.S. based MNC) will receive 250,000 euros in one year. The spot exchange rate today is $1.20…

A: Currently in the forward market, the forward rate exhibits a 5% discount from current exchange rate.…

Q: Consider a 4-year 5% bond swap in euros for 1 million notional value. In other words, there will be…

A: a. Net Present Value (NPV) of the Euro PaymentsPV = C/(1 + r)^nFor each year, the cash flow (\(C\))…

Q: What is the implied nominal interest rate on a 6% semiannual 10-year U.S. T-notes ($100,000) futures…

A: Here,Current Price of Future Contract102-280Future Value of Contract $ 100,000.00Coupon Rate6%Time…

Q: Suppose that you have entered into a 3-year swap contract with the Swap desk at swap out your New…

A: Swap contract:A swap contract is a financial agreement between two parties to exchange cash flows…

Q: Jako writes a put option on Japanese yen with a strike price of $0.007500/* (*123.00/$) at a premium…

A: The formula for the payoff of a put option writing strategy at expiration can be expressed as: -Max…

Q: (mark-to-market) You enter a short position in a € future contract with the size of €125,000 today.…

A: Future contracts are contracts done today but settled on the date and rate specified in the contract…

Q: (mark-to-market) You enter a long position in a € future contract with the size of €125,000 today.…

A: 1. Given:  - Future contract size = €125,000  - Time to expiration = 90 days  - US interest rate…

Q: Record the gain or loss on the foreign currency euro call option with a premium of $0.050 per Euro…

A: Every business who-ever has to pay the money on account of the foreign currency wants to get into…

Q: A U.K importer has future payables of DM 20,000,000 in one year. The importer must decide whether to…

A: Deposit Rate Borrowing rate Sterling 8% 9% DM 6% 7% Spot rate  £ 0.74 =DM1     One…

Q: Consider a $10,000,000 1-year quarterly-pay swap with a fixed rate of 4.5% and a floating rate of…

A: Answer -   Calculation of Amount that will be realized to fixed rate payer in the swap -   The…

Q: You purchase a six month $1.25 strike put option on the British pound for $0.12 per unit. Each…

A: The put option provides the right to an investor but not an obligation for selling the stock at a…

Q: You trade in two types of options.  First, you purchase 7 call option contracts on the Euro with an…

A: Calculation of the profit or loss by participating in options is shown below:

Q: A trader focuses principally on the Australian Dollar/Singapore Dollar (A$/S$) cross-rate. The…

A: An option refers to a derivative instrument that gives its holder the choice of buying/selling the…

Q: To find the quoted price of a 180-day T-bill with a 5% yield and the contract price for a $1,000,000…

A: Treasury bills are short term debt securities issued by U.S. Department of the treasury serves as an…

Q: Suppose that you are a speculator that anticipates an appreciation of the Singapore dollar (S$). You…

A: Drawing table for the calculation of Net Profit :  Per unit Per contract Selling Price 0.92 23000…

Q: Suppose the risk free rate in pounds (£) is 5.71% and the risk free rate in US dollars ($) is 7.95%.…

A: The covered interest rate parity ensures the determination of future exchange rates without…

Q: Tyson Inc. is entering into a 3-year pay-euros and receive-dollars cross currency swap. The 3-year…

A: Tyson will receive dollars at 2.28% and will pay 1.89% euros.

Q: ¥12,500,000. What is Kiko's profit or loss at maturity if the ending spot rates are yen 110 divided…

A: An option is an agreement between two parties granting one the opportunity to buy or sell a security…

Q: Current USD Interest rates are 7% per annum and AUD rates are 9% per annum, flat for all terms.…

A: Foreign Exchange:Foreign exchange, also known as forex, is the process of buying and selling…

Q: e is a European call option on the dollar with strike price of Kc = 94 pence per dollar and a…

A: The call option gives opportunity to buy the stock on expiration but no obligations to do that and…

Q: Suppose that you are a speculator that anticipates an appreciation of the Singapore dollar (S$). You…

A: Drawing table for the calculation of Net Profit :  Per unit Per contract Selling Price 0.92 23000…

Q: Calculate the changes in the performance bond account from daily marking-to-market and the balance…

A: In a futures contract, the buyer and the seller agree to buy or sell a defined amount of an…

Q: price on a CME EUR futures contract is $1.3140 per euro. You have a long position in one contra size…

A: In future trading is done on margin basis and there is daily settlement of margin account.Given:Spot…

Q: XYZ Corporation, located in the United States, has an accounts payable obligation of ¥658 million…

A: As per the given information: Accounts payable obligation - ¥658 millionCurrent spot rate USDJPY -…

Q: As a US exporter selling to Europe. You wish to hedge a 1,040,000 Euro to be received in 3 months…

A: Calculation of dollars received if U.S. exporter hedge the position with futures or if Exporter…

Q: (mark-to-market) You enter a short position in a € future contract with the size of €125,000 today.…

A: Future contracts are contracts done today but settled on the date and rate specified in the contract…

Q: Market conditions are as follows; Exchange rate is USD 1 = JPY 130.00. USD market interest rate is…

A: The capital budgeting is a technique that helps to analyze the profitability of the project and…

Q: The 3-month June 2023 dollar interest rate futures contract is currently priced at 95.50. The…

A: An interest-rate futures contract is an agreement between the seller and buyer for the sale of an…

Q: In September 2020, swap dealers were quoting a rate for five-year euro interest-rate swaps of 4.5%…

A: In this question , September 2020, SWAP dealers were quoting a rate for five years Euro Interest…

Q: American Express sells a call option on euros (contract size is €500,000) at a premium of $0.04 per…

A: Here, Contract size = €500,000 Call Premium = $0.04 per euro. Exercise price = $0.91 Spot price of…

Q: Assume today's settlement price on a CME EUR futures contract is $1.3154 per euro. You have a short…

A: In a futures contract, the buyer and the seller agree to buy or sell a defined amount of an…

Q: A 6-month futures contract on British Pounds is available for a price of $1,3946. The size of each…

A: To hedge the outstanding payable of GBP 125,000, you need to take a short position in the futures…

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.