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International Financial Management

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 33QA

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o. What is the maximum possible gain the purchaser of a strangle can achieve using these options? Round your answer to three decimal places.
The maximum gain of a long strangle is unlimited for currency
appreciation
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0
eBook
The following information is currently available for Canadian dollar (C$) options:
. Put option exercise price $0.68.
Put option premium $0.016 per unit.
• Call option exercise price $0.70.
Call option premium $0.012 per unit.
. One option contract represents C$50,000.
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The maximum gain is limited only for currency depreciation
and equal to $
b. What is the maximum possible loss the writer of a strangle can incur? Enter your answer as a positive value. Round your answer to three decimal places.
The maximum loss of a short strangle is unlimited for currency
appreciation
and equal to $
The maximum loss is limited only for currency depreciation
c. Locate the break-even points of the strangle. Round your answers to three decimal places.
Lower break-even point: $
Higher break-even point: $
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