Yize Chen trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar (USD) toSingapore dollar (SGD) cross rate. The current spot rate is USD0.6000 = SGD1.00. After considerable study, she has concluded that theSingapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about USD0.7000 = SGD1.00. She has thefollowing options on the Singapore dollar to choose from:Option Strike Price PremiumPut on SGD USD0.6500 SGD1.00 USD0.00003 per SGDCall on SGD USD0.6500 = SGD1.00 USD0.00046 per SGDa. Should Yize buy a put on Singapore dollars or a call on Singapore dollars?b. What is Yize's break - even price on the option purchased in part (a)?c. Using your answer from part (a), what is Yize's gross profit and net profit (including premium) if the spot rate at the end of 90 days isindeed USD0.7000 = SGD1.00?d. Using your answer from part (a), what is Yize's gross profit and net profit (including premium) if the spot rate at the end of 90 days isUSD0.8000 SGD1.00?

Yize Chen's Currency Option Trade Explained Step-by-StepYize, a currency trader at Sumatra Funds,…

Answered: Yize Chen trades currencies for Sumatra…

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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In a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market ratesSpot exchange rate: Yen 106/$U.S. dollar interest rate per annum 10%Japanese Yen interest rate per annum 6%and told Ari that the company’s financial analyst expected the Japanese Yen to depreciate against the U.S. dollar by 3.46% in 90 days. Assume there are 360 days in a year, and all interest rates are simple interest rates. If the financial analyst’s prediction about the US dollar and Japanese Yen turned out to be true: Would Ari make a profit by borrowing 1 million US dollar and investing in the money markets? If yes, how much profit would Ari realize in 90 days?If no, explain why.
Ruth trades currencies for Industrial and Commercial Bank of China (ICBC) in Beijing. She is currently interested in the U.S. dollar/Australian dollar ($/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)?
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?
Maverik Avengers is an active currency trader based in Kuala Lumpur, Malaysia. He has been following the movements of € closely since the official Brexit. He notices that the exchange rates between the € and RM are quoted directly at 5.0500-80 and the available 90-day forward points for the currency pair are 180-200. If Avengers speculates the spot rates between the € and RM to be trading at 5.0600-50 at the end of 90 days, demonstrate how Avengers can make a speculation profit with RM10 million.
TNB has a 10-year, ¥50 million loan outstanding with a Japanese bank. The Yen loanhas a 2.5% annual interest rate. The loan was taken 5 years ago and so has 5 more yearsto go. Daibochi, a Japanese plastics maker with operations in Malaysia has justnegotiated a RM 5 million, 5-year loan with Maybank at 7.5% annual interest. Bothcompanies are worried about the foreign exchange exposure. Design a currency swapthat will enable both companies to manage exchange rate risk. (Assume debt servicingwill be on 6-monthly basis, the spot Yen/Ringgit rate is 10 Yen/Ringgit).
please quickly thanks !
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?
Given the following information, take advantage of the triangular arbitrage opportunity and calculate the US dollar profit for an investment of $1,000,000. Keep at least two decimals in your calculations and round at the very end to enter your answer with no decimals (i.e, if your final answer is 9.98, you will enter 10). Singapore dollar in US dollars (USD/SGD) 0.73 US dollars in British pounds (GBP/USD) 0.83 Singapore dollar in British pounds (GBP/SGD) 0.71
Samuel Samosir works for Peregrine Investments in Jakarta, Indonesia. He focuses his time and attention on the U.S. dollar/Singapore dollar ($/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 $0.006 Samuel decides to buy call options in Singapore dollars. What is Samuel's Break-Even spot rate at maturity? Keep the sign and all three decimal places.
In Jan 2003, the interest rate on the Japanese Yen was 1.91%, and on the Australian dollar was 5.86%. The spot rate was S(V/AU$)-75.49. Tom Bohn, a hedge fund trader specializing in FX trading in Blackrock Inc, started a carry trade between Yen and Australia for one year. Then the carry (interest rate differential) between Yen and AU$ was % (Two decimal places in your answer.

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