Question
The current spot rate for the Thai Bhat is 33.5 Bhat/S. The 6-month forward rate is 32.0 Bhat/$. A six month call option on the
The current spot rate for the Thai Bhat is 33.5 Bhat/S. The 6-month forward rate is 32.0 Bhat/$. A six month call option on the Bhat/S exchange rate with a strike price of 32.0 Bhat/S currently is selling at a 0.50 Bhat premium. A six month put option on the Bhat/$ exchange rate with a strike price of 32.0 Bhat/$ is currently selling at a 0.70 Bhat premium. Sam thinks that the spot rate in 6 months will be 30.0 Bhat/$. Sam has 100,000 US dollars in currency and wants to speculate that he is correct.
Using the spot market only. how can Sam speculate on his belief'? Give the exact steps. To receive full credit all of the steps must be listed and make sense. What will be his profit if he is correct?
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