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a 9. Arthur Doyle is a currency trader for Baker Street, a private investment house in London. Baker Street's clients are a collection of wealthy
a 9. Arthur Doyle is a currency trader for Baker Street, a private investment house in London. Baker Street's clients are a collection of wealthy private investors who, with a minimum stake of 250,000 each, wish to speculate on the movement of currencies. The investors expect annual returns in excess of 25%. Although the offices of Baker Street are in London, all accounts and expectations are based in U.S. dollars. Arthur is convinced that the British pound will depreciate significantly, possibly to $1.3200/ in the coming 30 to 60 days. The current spot exchange rate is $1.4260/. Arthur wishes to buy a put on pounds which will yield the 25% return expected by his investors. Which of the following put options would you recommend he purchase? Show that your choice is the preferable combination of strike price, maturity, and up- front premium expense. What factors should Arthur take into consideration in choosing the strike price? Strike Price $1.36/ $1.34/ $1.32/ $1.36/ $1.34/ $1.32/ Maturity 30 days 30 days 30 days 60 days 60 days 60 days Premium $0.00081/ $0.00021/ $0.00004/ $0.00333/ $0.00150/ $0.00060/
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