The following information is currently available for Canadian dollar (CS) options: Put option exercise price $0.68. Put option premium $0.016 per unit. Call option exercise price $0.70. Call option premium $0.012 per unit. One option contract represents C$50,000. a. What is the maximum possible gain the purchaser of a strangle can achieve using these options? Round your answer to three decimal places. The maximum gain of a long strangle is unlimited for currency appreciation 1
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- You buy an American call option priced at $0.025/€ on €225,000 at a strike price of $1.50/€. You wait until expiration date where the observed price is $1.40/€. What is total net cash flow involved at the end of this investment whether you exercise or do not exercise this option? [Ignore TVM]How to solve this problem? plz solve it step by step with formulas, thank u! (which one is the risk-free rate? 1% or 2%) Options on Indexes and Currencies Example Suppose that the current exchange rate of AUD to CAD is 1.2 AUD/CAD and o = 0.4463. Find the price of American put option to sell CAD for AUD at K = $1.1 AUD/CAD before or at half a year from now. Assume that the risk-free rates in Canada and Australia are 2% and 1%, respectively. Find the price of the American call option today by using the two period binomial model.eBook Reska, Inc., has constructed a long euro straddle. A call option on euros with an exercise price of $1.40 has a premium of $0.015 per unit. A euro put option has a premium of $0.009 per unit. Some possible euro values at option expiration are shown in the table below. a. Complete the worksheet and determine the net profit per unit to Reska, Inc., for each possible future spot rate. Use a minus sign to enter loss values, if any, If the answer is zero, enter "0". Round your answers to three decimal places. Call Put Net $0.90 $ $ $ $ b. Determine the break-even points of the long straddle. What are the break-even points of a short straddle using these options? Round your answers to three decimal places. Lower break-even point (long straddle): $ Higher break-even point (long straddle): s Lower break-even point (short straddle): s Higher break-even point (short straddle): 5 Value of Euro at Option Expiration $1.05 $1.50 $ S S $ $2.00 $
- Please use the following information to answer You have account paybles: ₤5 m in one year.InterestUS: 6.10% per annum & InterestUK: 9% per annumSpot exchange rate: $1.50/£ & Forward exchange rate: $1.46/£ (1-year maturity)Call option strike price: $1.46/£ & Put option premium: $0.02/£How much will you receive in $ if you use the forward contract hedge? You must show all work to earn credit. No credit will be given without supporting work. 5,000,000 GBP x $1.46 = $7,300,000 $7,300,000 x 6.10% x 1 year = $445,300 $7,300,000 + $445,300 = $7.7453 million 2. Draw a graph for the forward contract hedge. (X axis is the spot rate in the future. Y axis is “$ cash paid.”)P2: Given the following information, how much would you have paid on September 16 to purchase a British pound call option contract with a strike price of 155 and a maturity of October? Notice that the contract size is £31, 250. P3: Using the data in Problem 2, how much would you have paid to purchase an Australian dollar put option contract with a strike price of 65 and an October maturity?2. [Straddle]Suppose AAPL current price is $200. You purchase 10 calls with strike price equal to $200. You also bought 10 puts with strike price equals to $200. (This is called an option straddle) The put price is listed at $1.5 and the call is listed at $1.6. 1. What is the cost to set up the straddle? 2. What is your profit/loss if AAPL price goes to $210? $188? Stay at $200? 3. What do you think about the straddle strategy? When you lose money on this straddle strategy?
- Which of the lines is a graph of the profit at maturity of writing a call option on €62,500 with a strike price of $1.20 = €1.00 and an option premium of $3,125? ..********* B. ST C. $120 $1.25 SI 15 (Note: If you are unable to view the image, you can download it here: ProfitGraph.PNG) O A OB lass ProfitConsider the following option combination: Long $9 Straddle +1 SK2C90060C +1 SK2P90060C What is the net payoff value of the option combination above (in $/bu. + or -) if the price of Soybeans (SK2) falls to $7.50/bushel.A U.K importer has future payables of DM 20,000,000 in one year. The importer mustdecide whether to use option or a money market to hedge this position. The followinginformation is availableSpot rate £ 0.74 =DM1One year call optionExercise Price £ 0.76= DM1Premium £ 0.04 per DMOne year Put OptionExercise Price £ 0.77 =DMPremium £ 0.02 per DMSterling Deposit Rate 8% Per AnnumSterling Borrowing Rate 9% Per AnnumDM Deposit Rate 6% Per AnnumDM Borrowing Rate 7% Per AnnumForecast one-spot Rate £ 0.70 £0.77 £0.70Probability 25% 55% 20%Required:Assume that the importer’s objective is to minimize the sterling value of DM payables.Which of the hedging instruments would you recommend? Verify your answer by estimatingthe sterling cost for each type of hedge. Compare cost of hedging and non-hedging
- 2. These options are traded in the market: call option with an Exercise (Strike) Price of 1.15 $/€ and premium (option cost) of 0.03 $ per euro. (a) If the Spot exchange rate is 1.17 $/ €, is the option ITM, ATM or OTM? (b) Calculate Intrinsec value and Time value of the option. (c) If put options are traded with same Exercise Price at same cost of 0.03 $ per euro and Fwd for the same maturity is traded at 1.17 $/ €, how can an astute tradem arbitrage? Explain. (d) Calculate Intrinsec value and Time value of the put option mentioned above.For a call option of CN¥100,000 with the $0.16 exercise price and $0.0005 premium, When the spot exchange rate is $0.1602, the call option holder should __ the call? a. exercise b. not exerciseYou have account receivables: ₤5 m in one year. o InterestUS: 6.10% per annum & InterestUK: 9% per annum o Spot exchange rate: $1.50/£ & Forward exchange rate: $1.46/£ (1-year maturity) o Put option strike price: $1.46/£ & Put option premium: $0.02/£ How much will you receive in $ if you use the money market hedge?