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Problem 1 . 1 5 . It is May and a trader writes a September call option with a strike price of $ 2 0
Problem
It is May and a trader writes a September call option with a strike price of $ The stock price
is $ and the option price is $ Describe the investor's cash flows if the option is held until
September and the stock price is $ at this time.
Problem
A trader enters into a short forward contract on million yen. The forward exchange rate is
$ per yen. How much does the trader gain or lose if the exchange rate at the end of the
contract is a $ per yen; b $ per yen?
Problem
A trader buys a call option with a strike price of $ for $ Does the trader ever exercise the
option and lose money on the trade. Explain.
Problem
Trader A enters into a forward contract to buy an asset for $ an ounce in one year. Trader
buys a call option to buy the asset for $ in one year. The cost of the option is $ What
is the difference between the positions of the traders? Show the profit as a function of the price of
the asset in one year for the two traders.
Problem
A US company knows it will have to pay million euros in three months. The current exchange
rate is dollars per euro. Discuss how forward and options contracts can be used by the
company to hedge its exposure.
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