You trade in two types of options. First, you purchase 7 call option contracts on the Euro with an exercise price of 1.25. Second, you sell 8 put option contracts on the Euro with an exercise price of 1.22. The fees/prices on the contracts are $.04 (calls) and $.03 (puts). Forward Rates for the Euro are 1.210-11 $/E. If contract sizes for Euros are 125,000 options per contract and the final price of Euros is 1.40. $/E, how much profit/loss have you made from participation in options
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You trade in two types of options. First, you purchase 7 call option contracts on the Euro with an exercise price of 1.25. Second, you sell 8 put option contracts on the Euro with an exercise price of 1.22. The fees/prices on the contracts are $.04 (calls) and $.03 (puts). Forward Rates for the Euro are 1.210-11 $/E. If contract sizes for Euros are 125,000 options per contract and the final price of Euros is 1.40. $/E, how much
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- You have called your Forex dealer and asked for quotations USD/EUR on the spot, 1 month, 3-month and 6-month forward rates. The trader has responded with the following: USD 1.284/98 3/5 8/7 13/10 What does this mean in terms of dollars per euro? If you wished to buy spot euros, how much would you pay in dollars? If you wanted to purchase spot USD, how much would you have to pay in euro?American Express sells a call option on euros (contract size is €500,000) at a premium of $0.04 per euro. If the exercise price is $0.91 and the spot price of the euro at date of expiration is $0.93, what is American express’s profit or loss on this call option?You purchase a futures contract in euros for $170,000. The trading unit is 125,000 euros. What is the ratio of cents to euros in this contract? (Divide the dollar con- tract size by the size of the trading unit.) Assume you are required to put up $4,000 in margin and the euro increases by 3¢ (per euro). What will be your return as a percentage of margin?
- UCD (U.S. based MNC) will receive 250,000 euros in one year. The spot exchange rate today is $1.20 per euro. It observes that1. The one-year interest rate for euros is 8%, and the one-year interest rate for U.S. dollars is 3%.2. In the option market, there is one-year call option or put option available. Both options have the same exercise price of $1.18 per euro, and a premium of $0.02 per euro.3. In the forward market, the one-year forward rate exhibits a 5% discount from the current spot exchange rate. How should UCD utilize the forward market to hedge the exchange rate risk for its future receivables? And what shall be the amount received based on this hedging strategy? (Note: UCD can only buy or sell the forward contract at the forward rate available in the forward market described in bullet 3.)You plan to visit Geneva, Switzerland in three months to attend an international business conference. You expect to incur the total cost of CHF 11,000 for lodging, meals and transportation during your stay. As of today, the CHF/USD rate is 1.1017 and the three-month forward rate is 1.1125. You can buy the three-month call option on CHF with the exercise rate of 1.1000 for the premium of $0.024 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 4.7 percent per annum in the United States and 1.9 percent per annum in Switzerland. Calculate your expected dollar cost if you choose to hedge via call option on SF. (USD, no cents)Use the following information for the next 8 questions. UCD (U.S. based MNC) will receive 250,000 euros in one year. The spot exchange rate today is $1.20 per euro. It observes that1. The one-year interest rate for euros is 8%, and the one-year interest rate for U.S. dollars is 3%.2. In the option market, there is one-year call option or put option available. Both options have the same exercise price of $1.18 per euro, and a premium of $0.02 per euro.3. In the forward market, the one-year forward rate exhibits a 5% discount from the current spot exchange rate. 4 If UCD decides to use options contracts to hedge its receivables, UCD shall
- Use the following information for the next 8 questions. UCD (U.S. based MNC) will receive 250,000 euros in one year. The spot exchange rate today is $1.20 per euro. It observes that1. The one-year interest rate for euros is 8%, and the one-year interest rate for U.S. dollars is 3%.2. In the option market, there is one-year call option or put option available. Both options have the same exercise price of $1.18 per euro, and a premium of $0.02 per euro.3. In the forward market, the one-year forward rate exhibits a 5% discount from the current spot exchange rate. 3 How many U.S. dollars will UCD end up receiving for its 250,000 euro receivable by using money market hedge?Use the following information for the next 8 questions. UCD (U.S. based MNC) will receive 250,000 euros in one year. The spot exchange rate today is $1.20 per euro. It observes that1. The one-year interest rate for euros is 8%, and the one-year interest rate for U.S. dollars is 3%.2. In the option market, there is one-year call option or put option available. Both options have the same exercise price of $1.18 per euro, and a premium of $0.02 per euro.3. In the forward market, the one-year forward rate exhibits a 5% discount from the current spot exchange rate. 1How should UCD utilize the forward market to hedge the exchange rate risk for its future receivables? And what shall be the amount received based on this hedging strategy? (Note: UCD can only buy or sell the forward contract at the forward rate available in the forward market described in bullet 3.)i sold a call option with an exercise price of $1.20/euro. the premium was $0.02/euro. what is my profit or loss if the exchange rate is $1.205/euro?
- Malibu, Inc., is a U.S. company that imports British goods. It plans to use call options to hedge payables of 100,000 pounds in 90 days. Three call options are available that have an expiration date 90 days from now. Fill in the number of dollars needed to pay for the payables (including the option premium paid) for each option available under each possible scenario. Spot Rate of Pound Exercise Price Exercise Price Exercise Price 90 Days = $1.71; = $1.76; = $1.80; Scenario from Now Premium = $.04 Premium = $.06 Premium = $.03 1 $1.65 2 1.74 3…You are the U.S residents who are going to pay SF 5,000 for your family flight tickets to Switzerland in 3 months later. The 3-month forward rate is $0.63/SF. Today, the spot rate of USD to Swiss Franc (SF) is 0.60. You plan to hedge the exchange rate by entering into a 3- month call option on SF. The exercise rate of the option is $0.64/SF for the premium of $0.05 per SF. The addition information you have collected is 3-month USD interest rate 6 percent per annum and SF interest rate 4 percent per annum. You expect the future spot exchange rate would be the forward rate. a) What is your cost of buying SF5,000 with SF call option used for hedging? b) Compared with (a), what is the dollar (USD) cost of SF payable if you hedge using a forward contract. c) Determine the future spot exchange rate that will equate the total cost of using forward and option market hedges. d) If the SF appreciates beyond the exercise price of call option, what is your total dollar cost of SF…A European put option contract with an exercise price of $1.65 per pound and a contract size of £32,000 is currently trading at a premium of $0.18 per pound. Required: a-1. If you buy this contract, what spot exchange rate at maturity will maximize your profit? a-2. If you buy this contract, what is the amount of the maximum possible profit from one contract? b. If you buy this contract, what is your maximum possible loss from one contract? c. If you sell this contract, what is your maximum possible profit on this contract? d-1. If you sell this contract, what is your maximum possible loss from one contract? d-2. At what future spot exchange rate will you maximize your loss? e. At what future spot exchange rate, will either the buyer or seller of this contract break even?