Problem 7.11 Calandra Panagakos at CIBC Calandra Panagakos works for CIBC Currency Funds in Toronto. Calandra is something of a contrarian -- as opposed to most of the forecasts, she believes the Canadian dollar (C$) will appreciate versus the U.S. dollar over the coming 90 days. The current spot rate is $0.6750/C$. Calandra may choose between the following options on the Canadian dollar: Option Put on C$ Call on C$ a. b. C. d. рие 6758 Strike Price $0.7000 $0.7000 0.68997 рит Should Calandra/buy a put on Canadian dollars or a call on Canadian dollars? What is Calandra's breakeven price on the option purchased in part (a)? Using your answer from part (a), what is Calandra's gross profit and net profit (including premium) if the spot rate at the end of 90 days is indeed $0.7600? Using your answer from part (a), what is Calandra's gross profit and net profit (including premium) if the spot rate at the end of 90 days is $0.8250? St gross profit= Strike-price- price after go days. = 0.7 10.7 Premium $0.00003/S$ $0.00049/S$ 0.6750 6.7 0.70049 0. - а = 0.

Problem 7.11 Calandra Panagakos at CIBC Calandra Panagakos works for CIBC Currency Funds in Toronto. Calandra is something of a contrarian -- as opposed to most of the forecasts, she believes the Canadian dollar (C$) will appreciate versus the U.S. dollar over the coming 90 days. The current spot rate is $0.6750/C$. Calandra may choose between the following options on the Canadian dollar: Option Put on C$ Call on C$ a. b. C. d. рие 6758 Strike Price $0.7000 $0.7000 0.68997 рит Should Calandra/buy a put on Canadian dollars or a call on Canadian dollars? What is Calandra's breakeven price on the option purchased in part (a)? Using your answer from part (a), what is Calandra's gross profit and net profit (including premium) if the spot rate at the end of 90 days is indeed $0.7600? Using your answer from part (a), what is Calandra's gross profit and net profit (including premium) if the spot rate at the end of 90 days is $0.8250? St gross profit= Strike-price- price after go days. = 0.7 10.7 Premium $0.00003/S$ $0.00049/S$ 0.6750 6.7 0.70049 0. - а = 0.

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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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$ $1.371 $0.047 Put on S$ $1.37 $0.006 Samuel decides to buy call options in Singapore dollars. What will be Samuel's profit/loss if the ending spot rate is $1.286/S$ in 90 days? Keep all decimal places.
Question 24 Suppose the spot rate is A$1.77/GBP. An Audi can be purchased in Sydney, Australia, for A$30,000 or in London, United Kingdom, for £17,860. The real interest rate is 3.5% p.a. for AUD and 1.5% for GBP, a) Calculate the real exchange rate of Sydney Audi per London Audi Is the real exchange rate consistent with the prediction of the absolute PPP? Explain b) Suppose the real interest parity holds, calculate the expected real exchange rate of per London Audi. Will the change in the real exchange rate lead to an increase in the Australia? Explain. y Audi ports of Edit View Insert Format Tools Table 12pt Paragraph BIU AV2v T²V 2 120 ***
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Problem 9-19 (Algo) (LO 9-9) Shandra Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 132,000 pounds, with delivery and payment to be made on June 15. On April 15, when the spot rate is $1.47 per pound, Shandra purchases a two-month call option on 132,000 pounds and designates this option as a cash flow hedge of a forecasted foreign currency transaction. The time value of the option is excluded in assessing hedge effectiveness; the change in time value is recognized in net income over the life of the option. The option has a strike price of $1.47 per pound and costs $1,320. The goods are received and paid for on June 15. Shandra sells the imported goods in the local market immediately. The spot rate for pounds is $1.520 on June 15. Required: a-1. Prepare all journal entries for Shandra Corporation related to this transaction and hedge. a-2. What amount should Shandra Corporation report in net income as cost of goods sold for the quarter…
James Clark is a currency trader with Wachovia. He notices the following quotes: Spot exchange rate Six-month forward exchange rate Dollar interest rate Swiss franc interest rate a. Is the interest rate parity holding? You may ignore transaction costs. Yes Ο NO SFrl.2066/$ SFr1.1937/$ 2.50% per year 2.00% per year Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six months. The interest rate is 8 percent per annum in the United States and 7 percent per annum in Germany. Currently, the spot exchange rate is €1.06 per dollar and the six-month forward exchange rate is €1.04 per dollar. The treasurer of IBM does not wish to bear any exchange risk. Where should he or she invest to maximize the return? Better investment
6
Problem 19-4 (Algo) Required: Suppose a U.S. investor wishes to invest in a British firm currently selling for £33 per share. The investor has $66,000 to invest, and the current exchange rate is $2/£. Consider three possible prices per share at £31, £36, and £41 after 1 year. Also, consider three possible exchange rates at $1.60/£, $2/£, and $2.40/£ after 1 year. Calculate the standard deviation of both the pound- and dollar- denominated rates of return if each of the nine outcomes (three possible prices per share in pounds times three possible exchange rates) is equally likely. (Do not round intermediate calculations. Round your percentage answers to 2 decimal places.) X Answer is complete but not entirely correct. Standard deviation of pound-denominated return Standard deviation of dollar-denominated return 12.37 19.68 %
Question 2 You have the opportunity to store your hard-earned money in a French or a Japanese bank account. The Japanese bank account promises an interest rate of 2% a year. If you deposit 1000 Euro in the French bank account, interests will accrue so that you will have 1105 Euros in two years. Today's exchange rate is 1 Euro to 129.60 Yen. a) What should the 1-year forward exchange rate be for you to be indifferent between the two accounts? Make sure you explain what theories justify your calculations b) If the yearly inflation rate for France is 4%, what do you expect the Japanese inflation to be?
Please no written by hand solution Suppose you observe the following rates in a market. $0.80 = 1.0 euros $1.50 = 1.00 pounds 0.55 pound = 1.00 euro If you have $1 million, you will get arbitrage profits by buying a currency with $1 million, then buying another currency with the currency you bought, and lastly buying dollars with the currency you bought. The arbitrage profit with the operation will be ?
Samuel Samosir works for Peregrine Investments in Jakarta, Indonesia. He focuses his time and attention on the U.S. dollar/Singapore dollar ($/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.
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Cachita Haynes. Cachita Haynes works as a currency speculator for Vatic Capital of Los Angeles. Her latest speculative position is to profit from her expectation that the U.S dollar will rise significantly against the Japanese yen. The current spot rate is 119.00 = $1.00. She must choose between the following 90-day options on the Japanese yen: a. Should Cachita buy a put on yen or a call on yen? b. What is Cachita's breakeven price on the option purchased in part (a)? c. Using your answer from part (a), what is Cachita's gross profit and net profit (including premium) if the spot rate at the end of 90 days is ¥140.00 = $1.00? a. Should Cachita buy a put on yen or a call on yen? (Select the best choice below.) A. Cachita should buy a put on yen to profit from the rise of the dollar (the fall of the yen) OB. Cachita should buy a call on yen to profit from the fall of the dollar (the nse of the yen). OC. Cachita should buy a call on yen to profit from the rise of the dollar (the fall of…

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