A speculator is considering the purchase of five three-month Japanese yen call options with a striking price
Question:
A speculator is considering the purchase of five three-month Japanese yen call options with a striking price of 96 cents per 100 yen. The premium is 1.35 cents per 100 yen. The spot price is 95.28 cents per 100 yen and the 90-day forward rate is 95.71 cents. The speculator believes the yen will appreciate to $1.00 per 100 yen over the next three months. As the speculator's assistant, you have been asked to prepare the following:
1. Graph the call option cash flow schedule.
2. Determine the speculator's profit if the yen appreciates to $1.00/1 00 yen.
3. Determine the speculator's profit if the yen appreciates only to the forward rate.
4. Determine the future spot price at which the speculator will only break even.
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1 2 5 x 1000000 x 100 96 13510000 132500 3 Sinc...View the full answer
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Saikumar Ramagiri
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Related Book For 
International Financial Management
ISBN: 978-0078034657
6th Edition
Authors: Cheol S. Eun, Bruce G.Resnick
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