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 importer

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 importer

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 21QA

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42-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 importer
B.On October 23, the closing exchange rate of British pounds was $1.70. Calls that would mature the following January with a strike price of $1.75 were traded at $0.10. a. Were the call options in the money, at the money, or out of the money? b. Compute the intrinsic value of the call. c. If the exchange rate of British pounds rises to $1.90 prior to the January option expiration date, what is the percentage return on investment for an investor who purchased a call on October 23?
45-A US trader approached you with two quotes to know if there is a change in their values after 30 days. Spot rate GBP 0.350 = 1USD and 2 GBP = 2 USD after 30 days. Which one of the following will be your answer to the US trader? O a. USD is depreciated and GBP is appreciated O b. USD is appreciated and GBP is depreciated O c. None of the options O d. USD is appreciated and CNY is depreciated
You purchased a put option on British pounds for RM0.06 per unit. The strike price was RM5.60 and the spot rate at the time the pound option was exercised was RM5.68. Assume there are 47,580 units in a British pound option. What was your net profit on the option？
A speculator purchases a put option on British Pounds for 0.05$ per unit; the strike price is 1.50$. A pound option represents 31.250 units Assume that at the time of the purchase, the spot rate of the pound is 151$ and continually rises to 1.62$ by the expiration date. 1. Compute the highest net profit possible for the speculator based on the information above? 2. Compute the highest profit/loss for the seller of this put option
(1) You have the following quotations and expectations for the British pound:Present spot rate $1.3200/£Six-month forward rate $1.3500/£Six-month call option on pounds at a strike price of $1.32 and a premium of 4 cents per pound on the Philadelphia Stock Exchange. Your expectation for the spot rate in six months $1.3700/£(a) Assume you have $5,000,000 with which to speculate. Ignore transaction cost, taxes, and interest that might be earned on idle cash balances. (b) If your expectations prove correct, what would be your dollar profit from speculating in the spot market? (c) What risks are associated with this operation? 2. David Agbo is considering buying ten call options on Swiss franc on the Philadelphia Stock Exchange at a strike price of 54 cents per pound. The contract size is SF62, 500. The option will expire in three months. The premium is 2.0 cents per pound. Ignore the brokerage cost. The spot rate is currently $.5400/SF and the three-month forward rate is $.5525/SF. David…
You purchased a put option on Australian dollars for RM0.02 per unit. The strike price was RM4.25, and the spot rate at the time the option was exercised was RM4.38. Assuming that there are 13,830 units in the Australian dollar option.Would you exercise the option? What will your net profit on the put option？
a)A dealer sold a put option on Canadian dollars for $.05 per unit. The strike price was $.78, and the spot rate at the time the option was exercised was $.74. Assume that the dealer immediately sold off the Canadian dollars received when the option was exercised. Also assume that there are 50,000 units in a Canadian dollar option. What was the dealer’s total net profit/loss on the put option? b) A U.S. corporation has purchased currency call options to hedge a 70,000 pound payable. The premium is $.02 and the exercise price of the option is $.50. If the spot rate at the time of maturity is $.65, what is the total amount paid by the corporation if it acts rationally? c) On January 1st, a US firm ordered raw material from Japan and agreed to pay 100 million yen for this order on April 1st. It negotiated a 3-month forward contract to obtain 100 million Japanese yen on that date at $.009. On February 1st, the Japanese firm informed the US firm that it will not be able to fulfil…
17-An Omani importer expects appreciation of Us Dollar while importing goods for US $2,000. The importer goes for buying $2,000 one month forward contract the time of payment for the import. The spot rate and forward rate are respectively OMR 40 and OMR 40.30 per US dollar. Surprisingly, the spot rate on maturity is only OMR 40.50/$. Will the forward contract be beneficial to the importer? a. Forward contract is not beneficial because the sport rate on maturity is less than the forward rate and net loss OMR 400 b. Forward contract is not beneficial because the sport rate on maturity is higher than the forward rate and net loss OMR 400 c. None of the options d. Forward contract is beneficial because the sport rate on maturity is higher than the forward rate and net gain OMR 400
Speculating with Currency Call Options. ABC Inc., purchased 75,000 units call option on British pounds for $.021 per unit. The strike price was $ 0.78 and the spot rate at the time the option was exercised was $0.86. Assume there are 25,000 units per British pound option. What was ABC's net profit per option?
Question 1 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 (a) Draw the terminal payoff diagram for the holder of the currency call option on HKD. (b) Draw the terminal payoff diagram for the holder of the currency put option on USD. (c) How much does it cost to hold (i.e., buy) a call-HKD option? Use the Garman Kohlhagen model. (d) What is the minimum terminal exchange rate for the holder of the call-HKD option to profit fromholding the currency option?…
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.