Suppose that the spot price of the Canadian dollar is U.S. $0.75 and that the Canadian dollar/U.S. dollar exchange rate has a volatility of 10% per annum. The risk-free rates of interest in Canada and the United States are 1% and 1.25% per annum, respectively.
Calculate the value of a European call option to buy one Canadian dollar for U.S. $0.95 in nine months.
Call premium: $ ___________.
Use put-call parity to calculate the price of a European put option to sell one Canadian dollar for U.S. $0.95 in nine months.
Put premium: $ ___________.
What is the price of a call option to buy U.S. $0.95 with one Canadian dollar in nine months?
Call premium: $ ___________.
Suppose that the spot price of the Canadian dollar is U.S. $0.75 and that the Canadian dollar/U.S. dollar exchange rate has a volatility of 10% per annum. The risk-free rates of interest in Canada and the United States are 1% and 1.25% per annum, respectively.
Calculate the value of a European call option to buy one Canadian dollar for U.S. $0.95 in nine months.
Call premium: $ ___________.
Use put-call parity to calculate the price of a European put option to sell one Canadian dollar for U.S. $0.95 in nine months.
Put premium: $ ___________.
What is the price of a call option to buy U.S. $0.95 with one Canadian dollar in nine months?
Call premium: $ ___________.
Related questions
9)
A European call option and a European put option on a stock both have a strike price of $45 and expire in 6 months. Currently, the call price is $10 and the put price is $5 in the market. The risk-free rate is 2% per annum, and the current stock price is $50. Identify the arbitrage opportunity open to the trader. All the interest rates are with continuous compounding.
| a) Buy call, sell put, sell stock | ||
| b) Buy call, sell put, buy stock | ||
| c) Sell call, buy put, buy stock | ||
| d) Sell call, buy put, sell stock |
| Suppose the spot exchange rate for the Canadian dollar is Can$1.06 and the six-month forward rate is Can$1.03. |
| Required: |
| (a) | Which is worth more, a U.S. dollar or a Canadian dollar? |
| (Click to select)U.S. dollarCanadian dollar | |
| (b) | Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is Can$2.74? (Enter your answer as directed, but do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) |
| Cost in U.S dollar | $ |
| (c) | Is the U.S. dollar selling at a premium or a discount relative to the Canadian dollar? |
| (Click to select)discountpremium | |
| (d) | Which currency is expected to appreciate in value? |
| (Click to select)U.S. dollarCanadian dollar | |
| (e) | Which country do you think has higher interest ratesâthe United States or Canada? |
| (Click to select)the United StatesCanada |
