Yize Chen trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar (USD) to Singapore dollar (SGD) cross rate. The current spot rate is USD0.6000 = SGD1.00. After considerable study, she has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about USD0.7000 = SGD1.00. She has the following options on the Singapore dollar to choose from: Option Strike Price Premium Put on SGD USD0.6500 SGD1.00 USD0.00003 per SGD Call on SGD USD0.6500 = SGD1.00 USD0.00046 per SGD a. Should Yize buy a put on Singapore dollars or a call on Singapore dollars? b. What is Yize's break - even price on the option purchased in part (a)? c. Using your answer from part (a), what is Yize's gross profit and net profit (including premium) if the spot rate at the end of 90 days is indeed USD0.7000 = SGD1.00? d. Using your answer from part (a), what is Yize's gross profit and net profit (including premium) if the spot rate at the end of 90 days is USD0.8000 SGD1.00?
Yize Chen trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar (USD) to Singapore dollar (SGD) cross rate. The current spot rate is USD0.6000 = SGD1.00. After considerable study, she has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about USD0.7000 = SGD1.00. She has the following options on the Singapore dollar to choose from: Option Strike Price Premium Put on SGD USD0.6500 SGD1.00 USD0.00003 per SGD Call on SGD USD0.6500 = SGD1.00 USD0.00046 per SGD a. Should Yize buy a put on Singapore dollars or a call on Singapore dollars? b. What is Yize's break - even price on the option purchased in part (a)? c. Using your answer from part (a), what is Yize's gross profit and net profit (including premium) if the spot rate at the end of 90 days is indeed USD0.7000 = SGD1.00? d. Using your answer from part (a), what is Yize's gross profit and net profit (including premium) if the spot rate at the end of 90 days is USD0.8000 SGD1.00?
Chapter20: Short-term Financing
Section: Chapter Questions
Problem 3BIC
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Transcribed Image Text:Yize Chen trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar (USD) to
Singapore dollar (SGD) cross rate. The current spot rate is USD0.6000 = SGD1.00. After considerable study, she has concluded that the
Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about USD0.7000 = SGD1.00. She has the
following options on the Singapore dollar to choose from:
Option Strike Price Premium
Put on SGD USD0.6500 SGD1.00 USD0.00003 per SGD
Call on SGD USD0.6500 = SGD1.00 USD0.00046 per SGD
a. Should Yize buy a put on Singapore dollars or a call on Singapore dollars?
b. What is Yize's break - even price on the option purchased in part (a)?
c. Using your answer from part (a), what is Yize's gross profit and net profit (including premium) if the spot rate at the end of 90 days is
indeed USD0.7000 = SGD1.00?
d. Using your answer from part (a), what is Yize's gross profit and net profit (including premium) if the spot rate at the end of 90 days is
USD0.8000 SGD1.00?
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