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Question 1 20 pts 1. (5 marks): Alice sold a call option on Canadian Dollars for $.03 per unit. The exercise price was $.80, and
Question 1 20 pts 1. (5 marks): Alice sold a call option on Canadian Dollars for $.03 per unit. The exercise price was $.80, and the spot rate at the time the Candian dollar option was exercised was $.86. Assume there are 51,250 units in a Canadian Dollar option contract. What was Alice's per-unit net profit on the option contract? What was Alice's total net profit on the option contract? Calculate the break-even spot rate (at expiration) for Alice. Discuss (briefly) the answer. 2. (5 marks): STS Bank can borrow $2 million [i.e., $2,000,000) at 10 percent annualized. It can use the proceeds to invest in Australian dollars at 8 percent annualized over a 90-day period. The Australian dollar is worth $.7115 and is expected to be worth $.7325 in 90 days. Based on this information, should STS Bank borrow U.S. dollars and invest in Australian dollars? What would be the gain or loss in U.S. dollars? (5 marks). 3. (4 marks): A speculator (US-based) has just completed transactions in Belgium and England. He is now holding 350,000 and 200,000 and wants to convert to U.S. dollars. His currency dealer provides this quotation: GBP/USD 0.5025 - 0.5077 USD/EUR $1.4739 - $1.4747 Assuming no other fees, what are his proceeds from conversion? 4. (3 +3 marks): (a) Assume the Australian dollar is worth $.7117 and the Japanese yen is worth $.0092. What is the cross rate of the Australian dollar with respect to the yen? That is, how many yen equal an AUD? -----(b) STS Bank's bid price for Canadian dollars is $.8138 and its ask price is $.8221. What is the bid/ask percentage spread? Upload Choose a File
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