Yize Chen trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time and
Question:
Yize Chen trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar (USD) to Singapore dollar (SGD) cross-rate. The current spot rate is USD0.6000 = SGD1.00. After considerable study, she has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about USD0.7000 = SGD1.00. She has the following options on the Singapore dollar to choose from:
a. Should Yize buy a put on Singapore dollars or a call on Singapore dollars?
b. What is Yize's break-even price on the option purchased in part (a)?
c. Using your answer from part (a), what is Yize's gross profit and net profit (including premium) if the spot rate at the end of 90 days is indeed USD0.7000 = SGD1.00?
d. Using your answer from part (a), what is Yize's gross profit and net profit (including premium) if the spot rate at the end of 90 days is USD0.8000 = SGD1.00?
Step by Step Answer:
Multinational Business Finance
ISBN: 9780137496013
16th Edition
Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett