You are the forex control officer in the foreign exchange department of Bank Monash (based in Melbourne,
Question:
You are the forex control officer in the foreign exchange department of Bank Monash (based in Melbourne, Australia). You have been given three tasks to accomplish.
Task 1: You need to write a put option for one of your client ABC Ltd. The option involves Canadian Dollar ($CAD) and Australian Dollar ($AUD). Your bank charges a premium of $AUD 0.03 for each unit of $CAD traded via put option contract. The prediction is, the spot rate can be $ 1CAD = $AUD 1.25 around the time of option's execution date (expiry date).
What strike rate you should put to prevent any loss if the contract is executed?
Task 2: The following exchange rate quotations are currently available in the interbank market: $1 AUD = $2.50 NZD (New Zealand Dollars) $1 NZD = $0.70 CAD (Canadian Dollar) Your client XYZ Ltd needs to purchase $500,000 $CAD with $AUD.
How many $AUD will you need to purchase to fulfil your client's order.
Task 3: You need to prepare a disclosure document for both of your clients.
You need to write down two advantages and two disadvantages for and explaining at least three factors that can affect the option pricing.
Expert Answer:
Task 1 To prevent any loss if the put option contract is executed we need to determine the strike rate The strike rate should be set at a level that e... View the full answer
