Cece Cao in Jakarta. Cece Cao trades currencies for Sumatra Funds in Jakarta. She focuses nearly all
Question:
Cece Cao in Jakarta. 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:
a. Should Cece buy a put on Singapore dollars or a call on Singapore dollars?
b. What is Cece’s break-even 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 $0.8000/S$?
Transcribed Image Text:
Option Strike Price Premium Put on Sing $ $0.6500/S$ $0.00003/S$ Call on Sing $ $0.6500/S$ $0.00046/S$
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