Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please answer the attached file. Please answer the attached file. 1 International Finance - Fin 343 - Summer 2015 Assignment #2 1. On Monday morning,

Please answer the attached file.

Please answer the attached file.

image text in transcribed 1 International Finance - Fin 343 - Summer 2015 Assignment #2 1. On Monday morning, an investor takes a long position in a pound futures contract that matures on Wednesday afternoon. The agreed-upon price is $1.78 for 62,500. At the close of trading on Monday, the futures price has risen to $1.79. At Tuesday close, the price rises further to $1.80. At Wednesday close, the price falls to $1.785, and the contract matures. The investor takes delivery of the pounds at the prevailing price of $1.785. a. [8 pts] Detail the daily settlement process in the table below. Show the loss or gain each day, if any, and the final day's cash flow from the investor's perspective in the Cash Flow column. b. [2 pts] What will be the investor's profit (loss)? Time Investor's Action Cash Flow ------------------------------------------------------------------------------------------------------------------Monday morning Monday close Tuesday close Wednesday close 2. Eagle Corporation must pay its Japanese supplier 125 million in three months. It is thinking of buying 20 yen call options (contract size is 6.25 million) at a strike price of $0.00800 in order to protect against the risk of a rising yen. The premium is 0.015 cents per yen. Alternatively, Eagle could buy 10 three-month yen futures contracts (contract size is 12.5 million) at a price of $0.007940 per yen. The current spot rate is 1 = $0.007823. Suppose Eagle's treasurer believes that the most likely value for the yen in 90 days is $0.007900, but the yen could go as high as $0.008400 or as low as $0.007500. a. [4 pts] What are Eagle's gains and losses on the call option position and the futures position within its range of expected prices? Ignore transaction costs and margins. b. [4 pts] Calculate what Eagle would gain or lose on the option and futures positions if the yen settled at its most likely value. c. [2 pts] What is Eagle's break-even future spot price on the option contract? On the futures contract

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Modeling

Authors: Simon Benninga

2nd Edition

0262024829, 9780262024822

More Books

Students also viewed these Finance questions

Question

2. The purpose of the acquisition of the information.

Answered: 1 week ago

Question

1. What is the meaning of the information we are collecting?

Answered: 1 week ago