Solve...this questions.
E1. Michael Milkem, an ambitious MBA student from Anchorage, Alaska, is looking for free lunches on the foreign exchange markets. Keeping his eyes glued to his Reuters screen until the wee hours, he spots the following quotes in Tokyo: Exchange rates:spot DEM/USD 1.59-1.60 JPY/USD 100-101 DEM/GBP 2.25-2.26 JPY/GBP 150-152 180-day Forward DEM/USD 1.615-1.626 JPY/USD 97.96-98.42 DEM/GBP 2.265-2.274 JPY/GBP 146.93-149.19 Interest rates (simple, p.a.) 180 days USD 5%-5.25% JPY 3%-3.25% DEM 8%-8.25% GBP 7%-7.25% Given the above qutoes, has Michael found any arbitrage opportunities?E2. Polyglot Industries will send its employee Jack Pundit to study French in an intensive training course at the Sorbonne. Jack will need FRF 10,000 at / = 3 months when classes begins, and FRF 6,000 at f = 6 months, f = 9 months, and / = 12 months to cover his tuition and living expenses. The exchange rates and p.a. interest rates are the following: USD/FRF Exchange rate p.a. interest rate USD p.a. interest rate FFR spot 5.820-5.830 90 days 5.765-5.770 3.82-4.07 8.09-8.35 180 days 5.713-5.720 3.94-4.19 8.00-8.26 270 days 5.660-5.680 4.13-4.38 7.99-8.24 360 days 5.640-5.670 4.50-4.75 7.83-8.09 Polyglot wants to lock in the FRF value of Jack's expenses. Is it indifferent between buying FRF forward and investing in FRF for each time period that he should receive his allowance?12. Consider a European put option on a stock index without dividends, with 6 months to expiration and a strike price of 1,000. Suppose that the effective six-month interest rate is 2%, and that the put costs 74.20 today. Calculate the price that the index must be in 6 months so that being long in the put would produce the same profit as being short in the put. (A) 922.83 (B) 924.32 (C) 1,000.00 (D) 1,075.68 (E) 1,077.17 IFM-01-18 Page 8 of 105 13. A trader shorts one share of a stock index for 50 and buys a 60-strike European call option on that stock that expires in 2 years for 10. Assume the annual effective risk-free interest rate is 3%. The stock index increases to 75 after 2 years. Calculate the profit on your combined position, and determine an alternative name for this combined position. Profit Name (A) -22.64 Floor (B) -17.56 Floor (C) -22.64 Cap (D) -17.56 Cap (E) -22.64 "Written" Covered Call 14. The current price of a non-dividend paying stock is 40 and the continuously compounded risk-free interest rate is 8%. You are given that the price of a 35-strike call option is 3.35 higher than the price of a 40-strike call option, where both options expire in 3 months. Calculate the amount by which the price of an otherwise equivalent 40-strike put option exceeds the price of an otherwise equivalent 35-strike put option. (A) 1.55 (B) 1.65 (C) 1.75 (D) 3.25 (E) 3.354. Provide economic intuition for the similar price movements and their timing observed between August and October. Remember that futures contracts reflect rational expectations about the supply and demand of the commodity.14. You're a corn farmer. Assume that average corn yields are 134 bushels per acre and you have a 5,. acre corn farm. You will store 12% of your harvest and sell the remaining crop to your nearby elevator. Your cost to produce a bushel of corn is $4.ml.-"bu, which you incur on all produced bushels, regardless of whether you decide to sell them humediately or store for later sales. You wish to hedge the expected price risk using futlues markets. Respond to the following
