Question: This is the same first paragraph as the previous question: You are an options trader specializing in the Singapore dollar. The current spot rate is

This is the same first paragraph as the previous question:

You are an options trader specializing in the Singapore dollar. The current spot rate is $0.62/S$. A put option on the Singapore dollar that expires in 90 days with a strike price of $0.64/S$ sells for a premium of $0.00009/S$, while a call option on the Singapore dollar that expires in 90 days with the same strike price sells for a premium of $0.00041/S$.

Now assume that the spot rate is $0.67/S$, but you now believe it will go to $0.61/S$. You would like to buy 1,000,000 options with a strike price of $0.64/S$. Based on that belief, determine whether you would buy calls or puts, and then calculate how much money you make or lose if the spot rate goes to $0.62/S$?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

The comparative balance sheets for Ivanhoe Company Ivanhoe Company Comparative Balance Sheets December 31 Assets 2025 2024 Cash $74,800 $49,500 Accounts receivable 55,000 63,800 Inventory 166,595...

This is the same first paragraph as the previous question: You are an options trader specializing in the Singapore dollar. The current spot rate is \$ \\$ 0.62 / \\mathrm{S} \\$ \$. A put option on...

You are on options trader specializing in the Singapore dollar. The current spot rate is $0.60/$. A put option on the Singapore dollar that expires in 90 days with a strike price of $0.64/S$ sells...

John Dindo, a foreign exchange trader at JPMorgan Chase, can invest $ 5 million, or the foreign currency equivalent of the bank's short - term funds, in a covered interest arbitrage with Denmark....

Can you answer question D? Matt works for a currency trader. He expects that the Australian dollar (AUD) will appreciate versus the U.S. dollar over the coming 90 days. The current spot rate is...

Hi, this question has been posted before, but the answers appear a bit different. Can someone potentially clarify for me? Matt works for a currency trader. He expects that the Australian dollar (AUD)...

Hello, Someone please assist with the homework assignment below, I have 1 hour to answer. Question 1. 1. Triangular arbitrage tends to force a relationship between the interest rates of two countries...

What factors should be considered in deciding whether the cost of capital for a foreign affiliateshould be higher, lower, or the same as the cost of capital for a comparable domestic operation?...

help me please with these questions for home work that is due in 2 hours . In which case will locational arbitrage most likely be feasible? (Points : 3.5) One bank's ask price for a currency is...

looking for the solution for this hedging on Porsche case. Recalibrated to PUT USD Euro Sales Currency Spot USD Sales Currency $/ Currency /$ Simulated EUR USD Conversion Risk Currency $/ Put Option...

(a) The figure shows a telephone wire hanging between two poles at x = b and x = b. It takes the shape of a catenary's with equation y = c + a cosh (x/a). Find the length of the wire. (b) Suppose two...

Carbon dioxide is held responsible for much of global warming, For this discussion, conduct independent research on technological innovations that have been proven to reduce carbon dioxide emissions....

The capital structure choice reflects the trade - off between the tax benefits and default risk associated with debt financing ( Miao , 2 0 0 5 ) . Do you agree? Explain.

BYP3-2 Managerial Analysis Harris Furniture Company manufactures living room furniture through two departments: Framing and Upholstering. Materials are entered at the beginning of each process. For...