You are a speculator expecting to reap profits from price changes.Due to the upward movement of interest
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Question:
You are a speculator expecting to reap profits from price changes. Due to the upward movement of interest rates in USA, you expect the USD to appreciate substantially by 7% in the coming months.
On examination of the derivatives market in Canada you find that the following USX options are available in the Montreal exchange.
The current spot rate USD/CAD= $1.3025.
One USX option is 10,000 USD. Your plan is to purchase 10 options.
June USX Call option - strike price $1.3250 - premium CAD 0.01
June USX put option - strike price $ 1.3155 - premium CAD 0.005
Which option will you buy and what will be your gain/loss if the USD appreciates to 1.3485 on the settlement day?
Expert Answer:
To determine the best option to buy and calculate the potential gain or loss lets analyze the two op... View the full answer
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