7. Sally Anderson trades currencies for BPP Mutual Funds in Kuala Lumpur. She put strong focus...

 

Transcribed Image Text:

7. Sally Anderson trades currencies for BPP Mutual Funds in Kuala Lumpur. She put strong focus on the exchange rates of US dollar (USD)/ Pound Sterling (GBP). The current spot rate of GBP is USD1.52. After thorough research, she has concluded that USD will depreciate against GBP in 60 days. The following options are available in the market: Option Strike Price Premium a. b. C. Put on GBP Call on GBP USD1.58 USD1.58 USD0.005 USD0.03 Units in the option 50,000 50,000 Should Sally buy a put option on GBP or a call option on GBP? Justify. Determine the break-even price for the seller of the option purchased by Sally in part (a). Assume that the spot rate of GBP at the end of 60 days is indeed USD1.60. Using your answer in part (a), determine the net profits/losses of Sally on this option. 7. Sally Anderson trades currencies for BPP Mutual Funds in Kuala Lumpur. She put strong focus on the exchange rates of US dollar (USD)/ Pound Sterling (GBP). The current spot rate of GBP is USD1.52. After thorough research, she has concluded that USD will depreciate against GBP in 60 days. The following options are available in the market: Option Strike Price Premium a. b. C. Put on GBP Call on GBP USD1.58 USD1.58 USD0.005 USD0.03 Units in the option 50,000 50,000 Should Sally buy a put option on GBP or a call option on GBP? Justify. Determine the break-even price for the seller of the option purchased by Sally in part (a). Assume that the spot rate of GBP at the end of 60 days is indeed USD1.60. Using your answer in part (a), determine the net profits/losses of Sally on this option.

Answer rating: 100% (QA)

Steps Step 1 of 3 a To determine whether Sally should buy a put option or a call option lets analyze the situation Put Option A put option gives the h... View the full answer