1. A university in U.S. will receive tuition fees from students totaling to around 200,000 in 3 months from now. As of today exchange rate in the forward and option market rate are:

Forward Market: Option Market

F ₉₀ [$ 1.0526/] Call Option = X = $ 1.0101/

Put Option = X = $ 1.0869/

Premium = $ 0.04 per

1. Assume that your expected future spot exchange rate is $ 1.0526/. Calculate the expected return if the university choose to hedge in the option market.
2. Calculate the expected return if the university decide to hedge using a forward contract.
3. At what future spot exchange rate will the university be indifferent between the forward and option market hedges? Infer the indifferent rate obtained.

Country	AMERCIAN TERMS ($ /		EUROPEAN TERMS ( / $
	BID	ASK	BID	ASK
NZ$	0.4660	0.4667
SG$	0.5705	0.5710

1. Compute the European terms for the currencies
2. What is the BID cross exchange rate for SG$ priced in NZ$?
3. What is the ASK cross exchange rate for SG$ priced in NZ$?
4. Suppose an investor wanted to SELL 2000 NZ$ to $ & SELL 1500 SG$ to $. How much is the total $ received at the end?
5. Suppose an investor wanted to BUY 1000$ by selling SG$. How many SG$ does he need?

3. An investor observes the following value for a call option on Japanese Yen

Strike price = 200 / $ Premium = 1.2 / $

Total units in the option contract = 10,000

Spot rate at the time expiration day is 205 / $

1. If the investor takes a call option of Japanese Yen , is the option in/at/out of the money?
2. What is the net profit per unit for the SELLER OF THE CALL OPTION?
3. Should the investor exercise the call option contract?
4. What is the net profit or loss per unit for the BUYER OF THE CALL OPTION?

4. Suppose a U.S. based company will receive 3 ,000,000 sometime during the next 3 months. The U.S. company is given the following forex cover by its banker

Call Options : X = $1.25/ Put Option: X = $1.35/

Option premium = $0.03/

1. What option should the exporter take?
2. What is the cost incurred today?
3. What is the breakeven price that the exporter has set on the price of the ?
4. If the spot rate at the end of 3 months is $1.55/?

i). Should the option exercised or let to expire?

ii). What is the actual cost for the above decision on the day of maturity?

5. A traveler SOLD A PUT OPTION on SG$ for a premium of $0.02 per unit. The Strike price X= $ 0.5706 and the price on the day of expiration S_T = 0.5600. There are 10,000 units in the options contract. What is the total net profit/loss for the traveler?

6. Consider the following set of foreign and domestic interest rates and spot and forward exchange rates.

Spot exchange rate		S($/)	=	$2.0000/
360-day forward rate		F360($/)	=	$2.0100/
U.S. discount rate for one year		i$	=	3.00%
British discount rate for one year		i	=	2.6%

1. Determine whether IRP is currently holding?
2. What is the forex traders decision?
3. If the trader can borrow $1,500,000 or 750,000, what is the arbitrage profit/loss for the trader?

7. Suppose that the one-year interest rate is 5 % p.a. in the U.S. and 3% in U.K. The spot exchange rate is $1.0101/. What is the no-arbitrage 1-year forward rate?

8. The exchange rate between euro and U.S.$ as on March 2019 : 0.67 / $. The price of a calculator in Euro zone is 1.5

1. Calculate the price of the calculator in U.S. using purchase-power parity (PPP) Theory.
2. If the actual price of the calculator in U.S. is $ 2.23. Is the U.S. dollars undervalued or overvalued in comparison to PPP estimate?

9. Compute the forward discount or premium for the SWIZZ FRANCS (CHF) whose 180-day forward rate is $0.76 and spot rate is $0.70. State whether CHF is at a premium or discount.