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:

LOADING...

.

a. Should Cece buy a put on Singapore dollars or a call on Singapore dollars?

b. What is Cece's breakeven 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

$0.8000/S$?

a. Should Cece buy a put on Singapore dollars or a call on Singapore dollars? (Select the best choice below.)

A.Since Cece expects the Singapore dollar to appreciate versus the U.S. dollar, she should buy a put on Singapore dollars. This gives her the right to buy Singapore dollars at a future date at

$0.6500/S$

each, and then immediately resell them in the open market at

$0.7000/S$

each for a profit. (If her expectation of the future spot rate proves correct.)

B.Since Cece expects the Singapore dollar to appreciate versus the U.S. dollar, she should buy a call on Singapore dollars. This gives her the right to buy Singapore dollars at a future date at

$0.7000/S$

each, and then immediately resell them in the open market at

$0.6500/S$

each for a profit. (If her expectation of the future spot rate proves correct.)

C.Since Cece expects the Singapore dollar to appreciate versus the U.S. dollar, she should buy a call on Singapore dollars. This gives her the right to sell Singapore dollars at a future date at

$0.6500/S$

each, and then immediately rebuy them in the open market at

$0.7000/S$

each for a profit. (If her expectation of the future spot rate proves correct.)

D.Since Cece expects the Singapore dollar to appreciate versus the U.S. dollar, she should buy a call on Singapore dollars. This gives her the right to buy Singapore dollars at a future date at

$0.6500/S$

each, and then immediately resell them in the open market at

$0.7000/S$

each for a profit. (If her expectation of the future spot rate proves correct.)