PLEASE SHOW WORK
1. Coke needs around GBP 100,000 in 60 days. It decides to buy 3 call options (93,750 units) for $0.05/unit with an exercise price of 1.50 USD/GBP. In 60 days the actual exchange rate is 1.75 USD/GBP. Should Coke exercise the option, and what is the potential net profit or loss?
2. In the previous example, what would be the net value of the call option if the GBP is 1.25 USD/GBP in the future?
3. You buy an American put option on GBP 31,250 with a cost of $0.04/unit and an exercise price of 1.50 USD/GBP. What is your net position of the put option if the actual market price of the GBP is 1.25 USD/GBP?
4. You write (sell) a call option on EUR 62,500 with an exercise price of 1.40 USD/EUR, at a premium of $0.02. The buyer of the option decides to exercise the option when the current exchange rate is 1.45 USD/EUR. What is the writerâs (sellerâs) net profit or loss?
5. IBM requires EUR 10,000,000 to pay for imported computer supplies in 6 months. They engage in a forward contract with Citibank at a forward rate of 1.65USD/EUR. Six months later the actual spot rate is 1.62USD/EUR. Did IBM save or lose from this deal?
6. Joe Gamble believes that the Swiss franc is going to appreciate against the dollar. He speculates by purchasing one futures contract with a price of 0.69 USD/CHF in 3 months. The current spot rate is 0.65 USD/CHF, and the actual spot rate in 3 months is 0.75 USD/CHF. Did Joe make the right decision?
7. Merck will receive GBP 500,000 in 9 months from their London subsidiary. Since they will repatriate the funds to the U.S., they engage in a forward contract with BankAmerica to sell pounds at the forward rate of 1.55 USD/GBP. In 9 months the actual spot rate is 1.60 USD/GBP. Determine Merckâs net gain or loss?
PLEASE SHOW WORK
1. Coke needs around GBP 100,000 in 60 days. It decides to buy 3 call options (93,750 units) for $0.05/unit with an exercise price of 1.50 USD/GBP. In 60 days the actual exchange rate is 1.75 USD/GBP. Should Coke exercise the option, and what is the potential net profit or loss?
2. In the previous example, what would be the net value of the call option if the GBP is 1.25 USD/GBP in the future?
3. You buy an American put option on GBP 31,250 with a cost of $0.04/unit and an exercise price of 1.50 USD/GBP. What is your net position of the put option if the actual market price of the GBP is 1.25 USD/GBP?
4. You write (sell) a call option on EUR 62,500 with an exercise price of 1.40 USD/EUR, at a premium of $0.02. The buyer of the option decides to exercise the option when the current exchange rate is 1.45 USD/EUR. What is the writerâs (sellerâs) net profit or loss?
5. IBM requires EUR 10,000,000 to pay for imported computer supplies in 6 months. They engage in a forward contract with Citibank at a forward rate of 1.65USD/EUR. Six months later the actual spot rate is 1.62USD/EUR. Did IBM save or lose from this deal?
6. Joe Gamble believes that the Swiss franc is going to appreciate against the dollar. He speculates by purchasing one futures contract with a price of 0.69 USD/CHF in 3 months. The current spot rate is 0.65 USD/CHF, and the actual spot rate in 3 months is 0.75 USD/CHF. Did Joe make the right decision?
7. Merck will receive GBP 500,000 in 9 months from their London subsidiary. Since they will repatriate the funds to the U.S., they engage in a forward contract with BankAmerica to sell pounds at the forward rate of 1.55 USD/GBP. In 9 months the actual spot rate is 1.60 USD/GBP. Determine Merckâs net gain or loss?
Related questions
Consider the following option portfolio: You write a January 2012 expiration call option on IBM with exercise price $168, and the price of the call option is $8.93. You also write a January expiration IBM put option with exercise price $163, the price of the put option is $10.85.
Instructions: for parts a, b, and c, enter your answer as a decimal rounded to the nearest cent.
a. What will be the profit/loss on this position if IBM is selling at $157 on the option expiration date? $
b. What will be the profit/loss on this position if IBM is selling at $172 on the option expiration date? $
c. At what two stock prices will you just break even on your investment (i.e., zero net profit)?
For the put, this requires that: $
For the call this requires that: $
d. What kind of âbetâ is this investor making; that is, what must this investor believe about IBMâs stock price in order to justify the position?
| betting that the IBM stock price will go up. | |
| betting that the IBM stock price will go down. | |
| betting that the IBM stock price will have low volatility. | |
| betting that the IBM stock price will have high volatility. |
