You have sold a put option on British pound and receive $0.03 per pound. The exercise price is $0.75 per British pound and at expiration the exchange rate was 1.5 British pound per dollar. Compute the net profit if the size of contract is 31,250. a. Net loss $1,666.67 b. Net profit $1,666.67 c. Net profit $0 d. Net loss $3,541.67

You have sold a put option on British pound and receive $0.03 per pound. The exercise price is $0.75 per British pound and at expiration the exchange rate was 1.5 British pound per dollar. Compute the net profit if the size of contract is 31,250. a. Net loss $1,666.67 b. Net profit $1,666.67 c. Net profit $0 d. Net loss $3,541.67

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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The E/S exchange rate is £1 = $1.30. US interest rate is 5% per year. UK interest rate is 2% per year. a. Find the fair price of a 1-year £/$ forward contract implied by the covered interest rate parity. b. Describe the arbitrage strategy if the actual forward price were £1 = $1.29 c. Why might the actual forward price differ from the fair price?
If the exchange rate at time t is Et = €1/$. You invest $1 in an euro asset at t, which has an interest of 8%. When the asset expires at t+1, you get paid € (x.xx round to two decimal places). If dollar appreciates by 2 % against euro, that is, Et+1 /$(x.xx round to two decimal places), then you can buy back $ (x.xx round UP to two decimal places). Blank # 1 Blank # 2 Blank # 3 MacBook Pro |米 G Search or type URL %24 & 7 80 09
Suppose a German importer owes an Australian exporting company 150,000 AUD, due in three months. S_0 (EUR/AUD) 0.60 Se (EUR/AUD) 0.50 (0.3) and 0.65 (0.7) Premium on AUD call option R = EUR0.02 Exercise exchange rate E = 0.62 Time to expiry 3 months What is the expected value of payables in AUD under hedge Will the option to hedge be undertaken on the basis of expected spot rate? Explain.
Suppose a 1-year UK T-bill pays 2.14% and a 1-year Canadian T-bill pays 1.32%. The current spot exchange rate is 1 British pound (GBP) = 1.7244 Canadian dollar (CAD) and the 1-year forward exchange rate is 1 GBP = 1.6837 CAD. What arbitrage profit can an investor earn on an investment value of CAD 1 milion?
Suppose the spot price of a euro in dollars is $0.932. The U.S. interest rate for 90 days is 6.875% and the euro rate for 90 days is 4.450%. All interest calculations are done as rate times (#days/360). a. What is the rate for a 90-day forward contract on the euro? b. Suppose the euro forward contract is currently quoted at $0.95. What type of transaction(s) should an arbitrageur conduct to take advantage of the apparent mispricing Only typed answer
Suppose one-year German Treasury bill pays 4.34% and one-year Canadian Treasury bill pays 3%. The current spot exchange rate is 1 Euro (EUR) = 1.3581 Canadian dollar (CAD) and the one-year forward exchange rate is 1 EUR = 1.3238 CAD. How much %3D arbitrage profit can an investor earn on an investment value of CAD 3 million?
Suppose you are a speculator from France. You observe the following 1-year interest rates, spot exchange rates and forward prices. Forward contract sizes are $10,000 each. Exchange rate €0.6500 = $1.00 €0.6731 = $1.00 Interest rate APR So(€/S) is 3% F3so(€/S) 4% Assume you did your own calculation of the forward price based on interest rate parity (IRP). It shows that an arbitrage opportunity exists because the forward price that you calculated is: F3so(€/S) of €0.6563 = $1.00. What actions will you take to make use of the arbitrage opportunity and what will your profit be? Page 1 of 5 а. €167.89. b. €240.24. C. $70.29. d. $43.08. е. None of the above. See my workings below.
The current USD/EUR exchange rate is [de] dollar per euro. The one-year forward exchange rate is [fe]. The one-year USD interest rate is [rus]% p.a. semiannually compounded. Estimate the one-year EUR interest rate (p.a. semiannually compounded, stated in percent). Inputs: de, fe, rus = 1.85, 1.75, 1.31 Tip: Use the CIP
The Swiss Franc is trading at 1.1106 $/SFr, the euro is trading at 1.1268 $/euro. If you can buy or sell SFr/euro at 1.0160, is there an arbitrage? If so, how much can you make with one round-trip using $1,000,000?
A brokerage company made the following deals: Calculate the result (profit or loss?) * 10.00 a.m.: GBP / USD: 1.2892;10 million USD are sold; GBP are purchased , * 10.01 a.m.: EUR / GBP: 0.8760;GBP amount is sold against EUR , *10.02 a.m.: EUR / USD: 1.1285;EUR are sold against USD
Suppose one-year German Treasury bill pays 4.13% and one-year Canadian Treasury bill pays 2.95%. The current spot exchange rate is 1 Euro (EUR)= 1.3694 Canadian dollar (CAD) and the one-year forward exchange rate is 1 EUR = 1.3335 CAD. How much arbitrage profit can an investor earn on an investment value of CAD 4 million Answer: CAD (DO NOT ROUND YOUR CALCULATIONS UNTIL YOU REACH THE FINAL ANSWER. ENTER YOUR RESPONSE ROUNDED TO TWO DECIMAL PLACES AND NO SEPARATOR FOR THOUSANDS.)
The following are the spot and the swap forward rates of the AUD/USD Spot 1.2500–1.2550 One-month 40–20 This means that the US dollar is selling at a forward discount. the US dollar is selling at a forward premium. the Australian dollar is selling at a forward discount. after allowing for transaction costs, both currencies sell at par.

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