Intro

An investor sold a call option on Japanese yen for $0.00001 per unit. The option has a strike price of $0.009 and covers 10,000,000 yen. Assume that the option can only be exercised on its expiration date.

Part 1

What will be the net profit (or loss) to the investor if the exchange rate is $0.0099 per yen on the expiration date (in USD)?

Part 2

What will be the net profit (or loss) to the investor if the exchange rate is $0.0081 per yen on the expiration date (in USD)?

Intro

An investor sold a put option on British pound for $0.006 per unit. The option has a strike price of $1.31 and covers 100,000 pounds. Assume that the option can only be exercised on its expiration date.

Part 1

What will be the net profit (or loss) to the investor if the exchange rate is $1.32 per pound on the expiration date (in USD)?

Part 2

What will be the net profit (or loss) to the investor if the exchange rate is $1.3 per pound on the expiration date (in USD)?

Part 1

A U.S. company expects to receive a payment in euros in four months. What could the company possibly do to hedge its exchange rate risk?

Check all that apply:

Sell euros forward

Buy a futures contract on euros

Buy a call option on euros

Buy a put option on euros

Purchase euros forward

Sell a futures contract on euros

Part 1

A U.S. company needs to make a payment in yen in six months on a bond that it issued in Japan. What could the company possibly do to hedge its exchange rate risk?

Check all that apply:

Sell a futures contract on yen

Buy a futures contract on yen

Buy a put option on yen

Buy a call option on yen

Purchase yen forward

Sell yen forward

Part 1

An increase in which of these factors increases the premium of a currency call option?

Check all that apply:

Strike price

Time to expiration

Spot exchange rate

Volatility of the currency

Part 1

An increase in which of these factors increases the premium of a currency put option?

Check all that apply:

Time to expiration

Strike price

Volatility of the currency

Spot exchange rate