Answered step by step
Verified Expert Solution
Question
1 Approved Answer
need help with both #6 and #7! thanks so much! 6. (20 points) Consider the following option contract on the Euro: It is a call
need help with both #6 and #7! thanks so much! 6. (20 points) Consider the following option contract on the Euro: It is a call option for 125,000 euros, but here the settlement prices are in terms of Swiss franc per one euro (i.e., if exercised, 125,000 will be delivered in exchange for the appropriate number of francs) The strike price is 1.07 franc per euro, and the premium is 0.0060 franc per euro. (a) Suppose a trader writes one of these call option contracts. What would be the trader's profit or loss if the spot rate upon the option expiration is 1.0800 francs per euro? (6) A different options trader purchased one of these call option contracts. What would be the profit or loss if the spot rate upon the option expiration is 1.0600 francs per euro? c) Another trader wrote two of these put option contracts. What would be this trader's profit or loss if the spot rate upon the option expiration is 1.0500 francs per euro? (d) Suppose that soon after taking these positions (but before their expiration), the value of the euro would appreciate substantially, well beyond expectations. Would it benefit the long position in this option or the short position? Strike Price 7. (15 points) Based on their belief that the U.S. dollar (USD) may depreciate significantly against the Mexican peso (MXN), a currency speculator in California wants to take a position that will be profitable in the case that the value of the dollar will plummet against the peso in the upcoming quarter. The current spot rate is 21.20 pesos per one dollar. The trader considers buying one of the following options on the Mexican peso: Option Premium Put on peso 30.048 per peso $0.00/50 per peso Call or pero $0.048 per peso 30.00025per peso (a) If only able to buy options (and not write options) should the trader buy a put on peso or a call on peso? [notice that the price in the table are quoted in terms of dollars per one peso] (b) Using your answer from part (a), what would be the trader's gross profit and net profit (excluding or including premiums) if the spot rate at the time of expiration is 22.0 pesos per on dollar? (each option is for one million peso) (e) Using your answer from part (a), what would be the trader's gross profit and net profit (excluding or including premiums) if the spot rate at the time of expiration is 20.4 pesos per on dollar? o: Option Put on peso Call on peso Strike Price $0.048 per peso $0.048 per peso Premium $0.00150 per peso $0.00025per peso ns (and not write options) should the trader buy a put on peso or a call on peso? 6. (20 points) Consider the following option contract on the Euro: It is a call option for 125,000 euros, but here the settlement prices are in terms of Swiss franc per one euro (i.e., if exercised, 125,000 will be delivered in exchange for the appropriate number of francs) The strike price is 1.07 franc per euro, and the premium is 0.0060 franc per euro. (a) Suppose a trader writes one of these call option contracts. What would be the trader's profit or loss if the spot rate upon the option expiration is 1.0800 francs per euro? (6) A different options trader purchased one of these call option contracts. What would be the profit or loss if the spot rate upon the option expiration is 1.0600 francs per euro? c) Another trader wrote two of these put option contracts. What would be this trader's profit or loss if the spot rate upon the option expiration is 1.0500 francs per euro? (d) Suppose that soon after taking these positions (but before their expiration), the value of the euro would appreciate substantially, well beyond expectations. Would it benefit the long position in this option or the short position? Strike Price 7. (15 points) Based on their belief that the U.S. dollar (USD) may depreciate significantly against the Mexican peso (MXN), a currency speculator in California wants to take a position that will be profitable in the case that the value of the dollar will plummet against the peso in the upcoming quarter. The current spot rate is 21.20 pesos per one dollar. The trader considers buying one of the following options on the Mexican peso: Option Premium Put on peso 30.048 per peso $0.00/50 per peso Call or pero $0.048 per peso 30.00025per peso (a) If only able to buy options (and not write options) should the trader buy a put on peso or a call on peso? [notice that the price in the table are quoted in terms of dollars per one peso] (b) Using your answer from part (a), what would be the trader's gross profit and net profit (excluding or including premiums) if the spot rate at the time of expiration is 22.0 pesos per on dollar? (each option is for one million peso) (e) Using your answer from part (a), what would be the trader's gross profit and net profit (excluding or including premiums) if the spot rate at the time of expiration is 20.4 pesos per on dollar? o: Option Put on peso Call on peso Strike Price $0.048 per peso $0.048 per peso Premium $0.00150 per peso $0.00025per peso ns (and not write options) should the trader buy a put on peso or a call on peso
need help with both #6 and #7! thanks so much!
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started