2c) Give an example to show that the American put can be worth more than the European put, that is, where immediate exercise of the American gives payout at times T strictly greater than the payout of the European. Hint: Exercising early means the strike price K will be received early.
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2c) Give an example to show that the American put can be worth more than the European put, that is, where immediate exercise of the American gives payout at times T strictly greater than the payout of the European. Hint: Exercising early means the strike price K will be received early.
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- A. As an MNC, when would you use the spot rate? Explain your answer. B. If our MNC currency's is weaker, how will it impact our purchase from the foreign supplier and profits? Solve both parts Wright only as required.....plz I will up voteA rise in the foreign interest rate will a.raise the value of both foreign-currency put and call options b.raise the value of foreign-currency call options and lower the value of foreign-currency put options c.reduce the value of both foreign-currency put and call options d.raise the value of foreign-currency put options and lower the value of foreign-currency call optionsTo hedge payables, the firm will purchase a currency call option on the payable foreign currency. The firm can use the call option to buy foreign currency at a specified price. Why should the company, in this case, purchase a call option than a Forward contract? Maybe to make it easy on me, you can illustrate the answer by highlighting the situations suitable for options and Forward contracts. For example, "when this situation occurs....., then that hedging we should use .... because of XYZ reasons/effects on profitability".
- When a European put is priced higher than its upper bound, you can arbitrage by devising a trading strategy that consists of ___________ a) Writing the European call b) Writing the corresponding European call and investing the proceeds at a risk‐free interest rate c) Writing the European put and investing the proceeds at a risk‐free interest rate d) Holding the European put and borrowing at a risk‐free interest rateSuppose that C is the price of a European call option to purchase a security whose present price is S.Show that if C > S then there is an opportunity for arbitrage (i.e. riskless profit). You may assume theinterest rate is r = 0 so that present value calculations are unnecessary.Suppose Mexico is a major export market for vour U.S.-based company and the Mexican peso appreciates drastically against the US. dollar. This means: (A) This means your company products can be priced out of the Mexican market, as the peso price of A American imports will rise following the peso's fall. (B) your firm will be able to charge more in dollar terms while keeping peso prices stable. (C) your domestic competitors will enjoy a period of facing lessened price competition from Mexican imports D) both b an(d c are correct
- A U.S. firm holds an asset in Great Britain and faces the following scenario: State 1 State 2 State 3 Probability 25% 50% 25% Spot rate $ 2.20 /£ $ 2.00 /£ $ 1.80 /£ P* £ 2,000 £ 2,500 £ 3,000 P $ 4,400 $ 5,000 $ 5,400 Find (a) the expected value of the exchange rate (b) the variance of the exchange rate (c) the covariance of the asset’s ($) price and (the exchange rate) (d) The "exposure" (i.e. the regression coefficient beta) faced by the firm as a result ( e) Find the cash flow in each of the three states if you implement your (forward) hedge at F1($/£) = $2/£.For the statements below indicate if it is true or false. If the statement is false, rewrite so that it is a true statement. Use the space available to answer your question. 2. When the actual foreign exchange rate for the dollar is greater than the equilibrium rate, the dollar is undervalued, meaning that it will buy less in international trade than it will buy at home. TRUE/False:49-An Omani importer expecting that appreciation of OMR in relative to GBP. How it will affect if the Omani importer's payments are in OMR? O a. GBP depreciated relative to USD, hence the importer pays fewer OMR O b. None of the options O c. GBP depreciated relative to OMR, hence the importer pays fewer OMR O d. GBP appreciated relative to OMR, hence the importer pays fewer OMR
- I have been working on the question below and I'm stuck on how to finish it up. I have provided what I've done so far. Is what I've done so far correct? And how do I finish up the problem? Here is the question: Suppose that C is the price of a European call option to purchase a security whose present price is S. Show that if C>S then there is an opportunity for arbitrage (i.e. risk-less profit). You may assume the interest rate is r=0 so that the present value calculations are unnecessary. My work so far: There is an opportunity for arbitrage if we can create a portfolio that initially (time t=0) generates a zero net cash flow or a cash inflow, but still produce a positive or zero cash inflow at the time of expiration. Assume we are going to short sell one call option C, and buy one stock S. Consider the cash flows at time t=0.Cash flow of selling one call option: +CCash flow of buying one stock: -STherefore, since C>S, we have an initial cash inflow of C-S>0. We will now…What is a long position in foreign exchange? Does a successful Long position mean the currency price becomes lower than what you bought it?An investor is bullish on the euro and believes it will increase against the Japanese Yen. The investor purchases a currency call option on the euro with a strike price (exchange rate) of ¥126/€. When the investor purchases the contract, the spot rate of the euro is equivalent to ¥126/€. Assume the euro's spot price at the expiration date (market price) is ¥136/€. the premium is ¥4/€ a) Assume the euro's spot price at the expiration date (market price) is ¥136/€ The investor's profit = ¥/€ b) Assume the euro's spot price at the expiration date (market price) is ¥122/€ The investor's profit = ¥/€ c) What is the maximum loss Maximum loss = ¥/€