2. The current spot rate of the Singapore dollar (S$) is $0.50 USD/S$. The following option information is available: European Call option premium on Singapore dollar (S$) = $0.02 USD. European Put option premium on Singapore dollar (S$) = $0.01 USD. The European Call and Put options' strike prices = $0.55 USD. Contract size of the underlying asset: S$1,000,000 Singapore Dollar Expiration date: June 18, 2020 (1) Calculate the gain loss for a long-position in each of these option contracts if the spot rate on June 18, 2020 turns out to be $0.60 USD per Singapore dollar (2) Recalculate the gain/loss on each of these option contracts if the spot turn on June 18, 2020 turns out to be $0.45 USD per Singapore dollar. (3) If your firm has a subsidiary firm in Singapore and your firm expects to receive S$1,000,000 Singapore dollar earnings remitted from the subsidiary in June 2020. Which option contract can help you hedge the foreign exchange rate risk in converting the Singapore dollar into US dollar? (4) Draw a payoff diagram for a long position in the call option and a long position in the put option respectively. On the diagram, show the strike price, breakeven price and the premium cost for each option contract. 2. The current spot rate of the Singapore dollar (S$) is $0.50 USD/S$. The following option information is available: European Call option premium on Singapore dollar (S$) = $0.02 USD. European Put option premium on Singapore dollar (S$) = $0.01 USD. The European Call and Put options' strike prices = $0.55 USD. Contract size of the underlying asset: S$1,000,000 Singapore Dollar Expiration date: June 18, 2020 (1) Calculate the gain loss for a long-position in each of these option contracts if the spot rate on June 18, 2020 turns out to be $0.60 USD per Singapore dollar (2) Recalculate the gain/loss on each of these option contracts if the spot turn on June 18, 2020 turns out to be $0.45 USD per Singapore dollar. (3) If your firm has a subsidiary firm in Singapore and your firm expects to receive S$1,000,000 Singapore dollar earnings remitted from the subsidiary in June 2020. Which option contract can help you hedge the foreign exchange rate risk in converting the Singapore dollar into US dollar? (4) Draw a payoff diagram for a long position in the call option and a long position in the put option respectively. On the diagram, show the strike price, breakeven price and the premium cost for each option contract
