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Problem 1 EUR rate= -1%, US rate = 3%, in perpetuity What is the fair Price for trading EURUSD in 1 year from now? (i.e., in 1 year, how many USD should a rational investor be willing to pay to buy EUR 1?) Problem 2 What is the Payout at expiry, in USD, and in EUR? For each option, Strike = ATM forward (A) EURUSD call (i.e., EUR call USD put) Spot at expiry = 1.3500 (B) EURUSD put (i.e., EUR put USD call) Spot at expiry = 1.2500 Problem 1 EUR rate= -1%, US rate = 3%, in perpetuity What is the fair Price for trading EURUSD in 1 year from now? (i.e., in 1 year, how many USD should a rational investor be willing to pay to buy EUR 1?) Problem 2 What is the Payout at expiry, in USD, and in EUR? For each option, Strike = ATM forward (A) EURUSD call (i.e., EUR call USD put) Spot at expiry = 1.3500 (B) EURUSD put (i.e., EUR put USD call) Spot at expiry = 1.2500
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Answer rating: 100% (QA)
Problem 1 To find the fair price for trading EURUSD in one year from now we can use the interest rate parity theory which states that the difference i... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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