Question
Hans Schmidt is a currency speculator. He is willing to risk his money based on his view of currencies and he may do so in
Hans Schmidt is a currency speculator. He is willing to risk his money based on his view of currencies and he may do so in the forward or options market data:
forward quote of $0.5760/Sfr
August call on francs at a strike price of 58 ($0.5850/Sfr) and a premium of $0.0050/Sfr
August put on francs at a strike price of 58 ($0.5850/Sfr) and a premium of $0.0050/Sfr
1) Assume Hans has $100,000 and he believes that the six month spot for Swiss francs will be $0.6000/Sfr.
a. Now, How would Hans speculate with forward? and how much cash flow is involved?
b. at the settlement date, what trading actions are taken, and how much cash flow is involved? and how much is net gain/loss?
2) Assume Hans has $100,000 and he believes that franc drops to $0.575/Sfr at expiration
c. Now, How would Hans speculate with options? and how much cash flow is involved?
d. at the settlement date/ expiration date, what trading activities are taken, and how much cash flow is involved? and how much is net gain/loss?
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