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1 TACC610 Workshop 10 Problem Set 1. Randy Rudecki purchased a call option on Chinese renminbi for US$0.0015 per unit. The strike price was US$0.16

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1 TACC610 Workshop 10 Problem Set 1. Randy Rudecki purchased a call option on Chinese renminbi for US$0.0015 per unit. The strike price was US$0.16 and the spot rate at the time the option was exercised was US$0.1644. Also, there are 1 million units in a Chinese renminbi option. What was Randy's net profit on this option? 2. Assume that a March futures contract on Australian dollar was available in January for 79.90 per unit. Also assume that forward contracts were available for the same settlement date at a price of 80.78 per Australian dollar. How could speculators capitalise on this situation, assuming zero transaction costs? How would such speculative activity affect the difference between the forward contract price and the futures price? 3. Brian Tull sold a put option on Korean won for US$0.00085 per unit. The strike price was US$0.0095 and the spot rate at the time the option was exercised was US$0.0082. Assume Brian immediately sold off the Korean won received when the option was exercised. Also, there are 1.25 million units in a Korean won option. What was Brian's net profit on the put option? 4. One year ago, you sold a put option on 100,000 Australian dollars with an expiration date of one year. You received a premium on the put option of AU$.04 per unit. The exercise price was AU$0.78. Assume that one year ago, the spot rate of the Australian dollar was $0.76, the one-year forward rate exhibited a discount of 2 per cent, and the one-year futures price was the same as the one-year forward rate. From one year ago to today, the Australian dollar depreciated against the US dollar by 4 per cent. Today, the put option will be exercised (if it is feasible for the buyer to do so). a. Determine the total dollar amount of your profit or loss from your position in the put option. b. Now assume that instead of taking a position in the put option one year ago, you sold a futures contract on 100,000 Australian dollars with a settlement date of one year. Determine the total dollar amount of your profit or loss

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