Cece Cao trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time and
Question:
Cece Cao trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar/Singapore dollar ($/S$) cross-rate. The current spot rate is $0.6000/S$. After considerable study, she has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about $0.7000/S$. She has the following options on the Singapore dollar to choose from:
Option_______________ Strike Price_________________Premium
Put on Sing $ ................$0.6500/S$...........................$0.00003/S$
Call on Sing $.....................$0.6500/S$...........................$0.00046/S$
a. Should Cece buy a put on Singapore dollars or a call on Singapore dollars?
b. What is Cece's breakeven price on the option purchased in part (a)?
c. Using your answer from part (a), what is Cece's gross profit and net profit (including premium) if the spot rate at the end of 90 days is indeed $0.7000/S$?
d. Using your answer from part (a), what is Cece's gross profit and net profit (including premium) if the spot rate at the end of 90 days is $0.8000/S$?
Step by Step Answer:
Given Data Option choices on the Singapore dollar ...View the full answer
Multinational Business Finance
ISBN: 978-0133879872
14th edition
Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett
Related Video
A put option is a financial contract that gives the owner the right, but not the obligation, to sell an underlying asset, such as a stock or a commodity, at a predetermined price, known as the strike price, on or before a specific date, known as the expiration date. Put options are used by investors as a form of insurance against a decline in the value of the underlying asset. If an investor expects the value of an asset to fall in the future, they can purchase a put option on that asset. If the value of the asset does fall, the put option will increase in value, allowing the investor to sell the asset at the higher strike price. For example, if an investor owns 100 shares of a stock that is currently trading at $50 per share, they may purchase a put option with a strike price of $45 and an expiration date three months in the future. If the stock price falls to $40 before the expiration date, the investor can exercise the put option and sell their shares for $45 each, even though the market price is only $40. This would allow the investor to limit their losses. It\'s important to note that purchasing a put option involves paying a premium to the seller of the option, and the investor can lose the entire premium if the price of the underlying asset does not decline as expected. Put options are just one type of financial derivative and should only be used by experienced investors who understand the risks involved.
Students also viewed these Banking questions
-
Sallie Schnudel trades currencies for Keystone Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar/Singapore dollar ($/S$) cross-rate. The current spot rate is...
-
How Can Persistently Weak Currencies Be Stabilized? Point The currencies of some Latin American countries depreciate against the U.S. dollar on a consistent basis. The governments of these countries...
-
Currencies of some Latin American countries, such as Brazil and Venezuela, frequently weaken against most other currencies. What concept in this chapter explains this occurrence? Why dont all...
-
Elevator Controller The block diagram for an elevator controller for a two-floorelevator follows. The inputs FB1 and FB2 are 1 when someone in the elevatorpresses the first and secondfloor buttons,...
-
In this segment of our continuing case, assume that you have been using standard costing to plan and control costs at your cookie store. In a meeting with your budget team, which includes managers...
-
Harry Potter is known to tens of millions of readers as a figment of J. K. Rowlings imagination. One of the good guys, he is a gifted apprentice magician and budding wizard. Harry and his pals have...
-
From the following trial balance of B Webb, extracted after one years trading, prepare a trading and profit and loss account for the year ended 31 December 19X6. A balance sheet is not required....
-
Carlos Gonzales is production manager at an assembly plant that manufactures cordless telephones. The company is planning to install a pull system. The process is being planned to have a usage rate...
-
On August 1, 2017, Blue Spruce Corp. issued $481,200, 7%, 10-year bonds at face value. Interest is payable annually on August 1. Blue Spruce's year-end is December 31. What is the tabular summary...
-
Why would a company prefer the control of owned media over the extended reach of the many to many model?
-
Amber McClain, the currency speculator we met earlier in the chapter,sells eight June futures contracts for 500,000 pesos at the closing price quoted in Exhibit 7.1. a. What is the value of her...
-
Christoph Hoffeman trades currency for Kapinsky Capital of Geneva. Christoph has $10 million to begin with, and he must state all profits at the end of any speculation in U.S. dollars. The spot rate...
-
Review the section describing the evolving forms of organizational design. Which forms appear especially appealing, challenging, and motivating? Why? Evolving Forms of Organizational Design Managers...
-
Rodriguez and Ying start a partnership on July 1, 2025. Rodriguez contributes $3.700 cash, furniture with a current market value of $51,000, accounts payable with a current market value of $14.000...
-
Develop a evaluation report analyzing the frameworks for evaluating the impact of an information system and system change. Develop an Excel or Word table evaluation plan for the project. The first...
-
The long-term bank loan arranged on december 31, 2023, with the canadian bank, is for a 5 year period at an interest rate of 9% (per annum effective monthly rate of 0.7207%). Monthly payments of...
-
Kesla Inc. manufactures a unique fuel injection system that yields dramatic cost savings through improved fuel efficiency. The effectiveness of the system is dependent upon the quality of a...
-
Compare and contrast the different types of property distribution methods that states follow during a divorce trial. If a married couple moves from one state to a different state that uses entirely...
-
Write Verilog code for the FSM described in Problem 6.9. Data From Problem 6.9. A sequential circuit has two inputs, w 1 and w 2 , and an output, z. Its function is to compare the input sequences on...
-
Read the Forecasting Supply Chain Demand Starbucks Corporation case in your text Operations and Supply Chain Management on pages 484-485, then address the four questions associated with the...
-
Comparison of prices or costs across different country and currency environments requires the translation of the local currency into a single common currency. This is most meaningful when the...
-
Blundell Biotech is a U.S.-based biotechnology company with operations and earnings in a number of foreign countries. The company's profits by subsidiary, in local currency (in millions), are shown...
-
Peng Plasma is a privately held Chinese business. It specializes in the manufacture of plasma cutting torches. Over the past eight years it has held the Chinese renminbi price of the PT350 cutting...
-
Incorrect Question 2 0/10 pts What are total amount of operating expenses? Refer to the Income Statement shown. The data was taken from an Exercise in Chapter 1 of the text. LESSING TOY & HOBBY...
-
QUESTION 8 Assets Liabilities Common Stock Shareholders' Equity Retained Earnings $ $ $ $ In March, Florist Gump, Inc., collected $6,000 of its accounts receivable from February sales. Show the...
-
The practice generally known as double taxation is due to:\ corporate incomes being taxed at the corporate level, then again at the shareholder level when corporate profits are paid out as...
Study smarter with the SolutionInn App