A US trader approached you with two quotes to know if there is a change in their values after 30 days. Spot rate GBP 0.350 = 1USD and 2 GBP = 2 USD after 30 days. Which one of the following will be your answer to the US trader? O a. USD is depreciated and GBP is appreciated O b. USD is appreciated and GBP is depreciated O c. None of the options O d. USD is appreciated and CNY is depreciated
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- 28-An American importer imported the goods from the UK for £62,500 and fears an appreciation in Pound and purchased a call option. Options are available at a strike price of $1.930/£ with a premium of $0.03/£. The spot rate on the maturity date is $1.830/£. Which one of the following is the gain (or) loss to the buyer of the call option? O a. None of the options O b. Call option gives gain $0.070/£ to the importer O c. Call option gives loss $0.03/£ to the importer O d. Call option gives gain $0.03/£ to the importer42-An American importer imported the goods from the UK for £62,500 and fears an appreciation in Pound and purchased a call option. Options are available at a strike price of $1.830/£ with a premium of $0.03/£. The spot rate on maturity rises to $1.930/£. Which one of the following is the gain (or) loss to the buyer of the call option? O a. Call option gives loss $4,375 to the importer O b. Call option gives gain $3,475 to the importer O c. None of the options O d. Call option gives gain $4,375 to the importer31. Suppose the index in the previous example has a value of 998 after 90 days. What is the value of a long position in the index forward contract, assuming a 5.23% continuously compounded risk-free rate and a 2.167% continuously compounded dividend yield? a) –Php87.629109 b) Php87.629109 c) Php93.414429 d) –Php93.414429 32. What is the price of a 1 x 4 FRA when the current 30-day LIBOR is 5.15% and the 100-day LIBOR is 5.85%? a) 6.124% b) 1.625% c) 0.23% d) 6.052% 33. Continuing with the previous problem for a 1 x 4 FRA, assume a notional principal of Php2 million and that the 70-day rate has climbed to 6.5%, which is higher than the contract rate determined in the previous problem. What is the value of FRA at maturity? a) Php1,462.2222 b) Php1,443.97202 c) Php49,093.333 d) Php48,480.5925
- 32-Mr. Mohammed is specialized in cross-rate arbitrage and noticed the below quotes: OMR 0.250/ USD, INR 75/USD, INR 325/OMR. Which one of the following statements represent the above? O a. None of the options O b. The quoted cross-rate is higher at INR/OMR hence the triangular arbitrage is not possible O c. The quoted cross-rate is higher at OMR/INR hence the triangular arbitrage is not possible O d. The quoted cross-rate is higher at INR/OMR hence the triangular arbitrage is possibleQ1 Consider the option on currency HKD against the USD: • Current spot rate is HKD7.50 for 1 USD • Risk-free HKD rate of interest is 5% p.a. • Risk-free USD rate of interest is 2% p.a. • Volatility (σ) of the currency returns is 20% p.a. • Maturity of the option is 3 months. • Strike rate of the option is HKD8.00 for 1 USD • The currency options are European in nature Answer the following questions. (i) How much does it cost to hold (i.e., buy) a call-HKD option? Use the Garman Kohlhagen model.Q1 Consider the option on currency HKD against the USD: • Current spot rate is HKD7.50 for 1 USD • Risk-free HKD rate of interest is 5% p.a. • Risk-free USD rate of interest is 2% p.a. • Volatility (σ) of the currency returns is 20% p.a. • Maturity of the option is 3 months. • Strike rate of the option is HKD8.00 for 1 USD • The currency options are European in nature Answer the following questions. (i) How much does it cost to hold (i.e., buy) a call-HKD option? Use the Garman Kohlhagen model. (ii) What is the minimum terminal exchange rate for the holder of the call-HKD option to profit from holding the currency option? (iii) How much does it cost to hold (i.e., buy) a put-HKD option? Do not use the Garman Kohlhagen model.
- 5 Consider an asset with current price 26 that provides income 0.50 in 3 months time. The price of a 6-month European call on the asset with strike 24 is ct = 1.75 and the risk free rate is4.5% for all maturities.(i) Show that there is an arbitrage opportunity.(ii) Construct an appropriate arbitrage portfolio to take advantage of the situation and determine the profit per call option used.12. Let the current spot rate be 1.21 Sf/$. Let the exercise price be 1.20 $/€. Let the volatility of the swiss franc be 0.26. The time to expiration is 3 months. The US rate is 2% and the swiss rate is 4%.18. What is the delta of the call?19. What is the value of the call?20. What is its time value?21. What is the value of the corresponding put?V7. A stock price is currently $232. It is known that at the end of seven months itwill be either $260 or $210. The risk-free interest rate is 3.5% per annum with continuouscompounding. hat is the value of a seven-month European put option with a strike priceof $240? Use no-arbitrage arguments.
- A European call and a European put on a stock have the same strike price and time to maturity. At 10:00am on a certain day, the price of the call is $3 and the price of the put is $4. At 10:01am news reaches the market that has no effect on the stock price or interest rates, but increases volatilities. As a result the price of the put changes to $4.50. Which of the following is correct? Question 4Answer a. The call price decreases to $2.50 b. It is possible that there is no effect on the call price c. The call price increases to $3.50 d. The call price increases to $4.5037. A European put option with an exercise price of $100 and 3 months till maturity is trading at $4 when the underlying stock is trading at $97.The risk free rate equals 5%. All other factors remaining same, the value of an American put option is least likely: a.$3 b.$4 c.$4.05D6 AMXL price is at 16.20, AMXL is expected to pay a dividend of 16 cents in 30 days and pay a dividend of 16 cents in 60 days. The 30-day risk-free rate is 8% and the 60-day risk-free rate is 8.60%. Do the following operations.a) Calculate the price of the 45-day forward