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One year ago, David sold a put option on 100,000 American dollars (USD) with an expiration date of one year. David received a premium on
One year ago, David sold a put option on 100,000 American dollars (USD) with an expiration date of one year. David received a premium on the put option of $.04 per unit. The exercise price was AUD1.2560/USD. Assume that, the spot rate of the USD at the date the option was sold was AUD1.2150/USD. At the same day, USD one-year forward rate exhibited a premium of 3%, and the one-year futures price was the same as the one-year forward rate. During the last year, USD has appreciated against the AUD by 4 percent. Today the buyer of put option expects to exercise the option. Required 1. List the factors that affect currency put option premium. (1 Points) 2. Determine the total dollar amount of David's profit or loss from his position in the put option. (2 Points) 3. If Frank David purchased a futures contract instead of taking a position in the put option one year ago, what would be his profit or loss? (2 Points) One year ago, David sold a put option on 100,000 American dollars (USD) with an expiration date of one year. David received a premium on the put option of $.04 per unit. The exercise price was AUD1.2560/USD. Assume that, the spot rate of the USD at the date the option was sold was AUD1.2150/USD. At the same day, USD one-year forward rate exhibited a premium of 3%, and the one-year futures price was the same as the one-year forward rate. During the last year, USD has appreciated against the AUD by 4 percent. Today the buyer of put option expects to exercise the option. Required 1. List the factors that affect currency put option premium. (1 Points) 2. Determine the total dollar amount of David's profit or loss from his position in the put option. (2 Points) 3. If Frank David purchased a futures contract instead of taking a position in the put option one year ago, what would be his profit or loss? (2 Points)
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