2. (4 Points) The U.S. six-month interest rate (unannualized) is 2.5%. The Sweden six-month interest rate...

 

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2. (4 Points) The U.S. six-month interest rate (unannualized) is 2.5%. The Sweden six-month interest rate (unannualized) is 5%. There are six-month call options and put options available for Swedish krona (SEK). Both options have the same premium of $0.005/SEK and a strike price of $0.10/SEK. The spot rate of the Swedish krona (SEK) is $0.12/SEK. Assume that you believe in International Fisher Effect (IFE). a. Forecast the dollar amount of your profit or loss from buying a call option contract specifying SEK100,000. Round the intermediate calculations to 4 decimal places and final answer to 2 decimal places. (2 points) b. Forecast the USD received by A&M company which uses the put option to hedge against its 6 month receivables of SEK100,000. Round the intermediate calculations to 4 decimal places and final answer to 2 decimal places. (2 points) ANS: Please label a/b in your response to the two sub-questions respectively. 2. (4 Points) The U.S. six-month interest rate (unannualized) is 2.5%. The Sweden six-month interest rate (unannualized) is 5%. There are six-month call options and put options available for Swedish krona (SEK). Both options have the same premium of $0.005/SEK and a strike price of $0.10/SEK. The spot rate of the Swedish krona (SEK) is $0.12/SEK. Assume that you believe in International Fisher Effect (IFE). a. Forecast the dollar amount of your profit or loss from buying a call option contract specifying SEK100,000. Round the intermediate calculations to 4 decimal places and final answer to 2 decimal places. (2 points) b. Forecast the USD received by A&M company which uses the put option to hedge against its 6 month receivables of SEK100,000. Round the intermediate calculations to 4 decimal places and final answer to 2 decimal places. (2 points) ANS: Please label a/b in your response to the two sub-questions respectively.

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