Chapter 5, Problem 1BIC

Suppose you observe the following exchange rates and interest rates for the USD and THB:    Bid Ask USD/THB 30.01 30.31 USD/THB F,360 ? ?     Trader lends at Trader borrows at I USD 1.55% 1.75% I THB 0.60% 0.85%   Which answer is closest to the minimum forward ask (USD/THBAF,360) that prevents covered interest rate arbitrage?   25.29 29.67 30.13 30.97 29.97

Suppose the exchange rate of euro at current spot market is $1.25/€. If a put option has a strike price of $1.18/€ then we can say this option is a)  inthemoney b)  outofthemoney c)  atthemoney d)  past breakeven

How can we obtain a pay-domestic-floating, receive-foreign-fixed currency swap by using a pay-domestic-fixed, receive-foreign-fixed currency swap and an appropriate interest rate swap?   Given the following American put option prices and current underlying share price of $304.75, check to see whether the given put options violate the lower bound condition. Where you detect a violation, devise an arbitrage strategy that will yield a positive cash flow now with zero possible cash flows in the future. Strike            Put price 300                 7.75 305                 8.15 310                 8.5 315                 9.05

Suppose that C is the price of a European call option to purchase a security whose present price is S. Show that if C>S then there is an opportunity for arbitrage (i.e. risk-less profit).  You may assume the interest rate is r=0 so that the present value calculations are unnecessary.

Consider a firm in the DC that uses inputs from a supplier in the FC. To hedge the FX risk the FC firm could (select all that are true): A.Purchase a futures contract for DC to FC below your expected future trajectory of the FX rate and that the supply cotract is written in the DC  B.Purchase a call option for FC to DC, which the firm will exercise if the spot FX rate (FC/DC) at the time is higher than the contract rate and the supply contract is written in the DC. C.Purchase a futures contract for FC to DC that you could sell for a profit if the DC weakens, which increases your costs of exporting the input D.Engage in a forward contract for DC to FC at today's spot rate, given that counter-party risk is managable and that the supply contract can be written in the DC. E.Exercise a futures contract for DC to FC if the strike price of the contract (FC/DC) is higher than the spot market rate at that time and that the supply contrtact can be written in the DC.   F.Purchase a call option…

A speculator has purchased United States dollar put options, with an exercise price of A$1.30and a premium of A$0.05 per unit.(a) Calculate the break-even price.(b) Calculate the profit or loss of the option for the speculator if the spot rate at the time the speculator considers exercising the options is : (1) A$1.20 (2) A$1.28 (3) A$1.34.(c) What is the maximum profit and maximum loss for the speculator?

If the euro is selling at a discount relative to the USD in the forward market, is the forward price of USD/EUR larger or smaller than the spot price of the USD/EUR? Group of answer choices a Larger b Smaller c Indeterminate d The same

Suppose that C is the price of a European call option to purchase a security whose present price is S.Show that if C > S then there is an opportunity for arbitrage (i.e. riskless profit). You may assume theinterest rate is r = 0 so that present value calculations are unnecessary.