Profits from Using Currency Options and Futures On July 2, the two-month futures rate of the Mexican peso contained a 2 percent discount (unannualized). A call option on pesos was available with an exercise price that was equal to the spot rate. In addition, a put option on pesos was available with an exercise price equal to the spot rate. The premium on each of these options was 3 percent of the spot rate at that time. On September 2, the option expired. Go to www.oanda.com (or any website that has foreign exchange rate quotations) and determine the direct quote of the Mexican peso. You exercised the option on this date if it was feasible to do so. What was your net profit per unit if you had purchased the call option? What was your net profit per unit if you had purchased the put option? What was your net profit per unit if you had purchased a futures contract on July 2 that had a settlement date of September 2? What was your net profit per unit if you sold a futures contract on July 2 that had a settlement date of September 2?

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 5, Problem 38QA
Textbook Problem

Profits from Using Currency Options and Futures On July 2, the two-month futures rate of the Mexican peso contained a 2 percent discount (unannualized). A call option on pesos was available with an exercise price that was equal to the spot rate. In addition, a put option on pesos was available with an exercise price equal to the spot rate. The premium on each of these options was 3 percent of the spot rate at that time. On September 2, the option expired. Go to www.oanda.com (or any website that has foreign exchange rate quotations) and determine the direct quote of the Mexican peso. You exercised the option on this date if it was feasible to do so.

  1. What was your net profit per unit if you had purchased the call option?
  2. What was your net profit per unit if you had purchased the put option?
  3. What was your net profit per unit if you had purchased a futures contract on July 2 that had a settlement date of September 2?
  4. What was your net profit per unit if you sold a futures contract on July 2 that had a settlement date of September 2?

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