Yize Shen at Sumatra Funds. Yize Chen trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time and attention on the U$.$S$.$ dollar $($USD$)$ to Singapore dollar $($SGD$)$ cross$-$rate. The current spot rate is USD$0\mathrm{.}6000=$ SGD$1\mathrm{.}00.$ After considerable study, she has concluded that the Singapore dollar will appreciate versus the U$.$S$.$ dollar in the coming $90$ days, probably to about USD$0\mathrm{.}7004=$ SGD$1\mathrm{.}00.$ She has the following options on the Singapore dollar to choose from:

a$.$ Should Yize buy a put on Singapore dollars or a call on Singapore dollars?

b$.$ What is Yize's break$-$even price on the option purchased in part $($a$)?$

c$.$ Using your answer from part $($a$),$ what is Yize's gross profit and net profit $($including premium$)$ if the spot rate at the end of $90$ days is indeed USD$0\mathrm{.}7004?$

d$.$ Using your answer from part $($a$),$ what is Yize's gross profit and net profit $($including premium$)$ if the spot rate at the end of $90$ days is USD$0\mathrm{.}8002?$

a$.$ Should Yize buy a put on Singapore dollars or a call on Singapore dollars? $($Select the best choice below.$)$

A$.$ Since Yize expects the Singapore dollar to appreciate versus the U$.$S$.$ dollar, she should buy a call on Singapore dollars. This gives her the right to buy Singapore dollars at a future date at USD$0\mathrm{.}7004/$SGD each, and then immediately resell them in the open market at USD$0\mathrm{.}6500/$SGD each for a profit. $($If her expectation of the future spot rate proves correct.$)$

B$.$ Since Yize expects the Singapore dollar to appreciate versus the U$.$S$.$ dollar, she should buy a put on Singapore dollars. This gives her the right to buy Singapore dollars at a future date at USD$0\mathrm{.}6500/$SGD each, and then immediately resell them in the open market at USD$0\mathrm{.}7004/$SGD each for a profit. $($If her expectation of the future spot rate proves correct.$)$

C$.$ Since Yize expects the Singapore dollar to appreciate versus the U$.$S$.$ dollar, she should buy a call on Singapore dollars. This gives her the right to buy Singapore dollars at a future date at USD$0\mathrm{.}6500/$SGD each, and then immediately resell them in the open market at USD$0\mathrm{.}7004/$SGD each for a profit. $($If her expectation of the future spot rate proves correct.$)$

D$.$ Since Yize expects the Singapore dollar to appreciate versus the U$.$S$.$ dollar, she should buy a call on Singapore dollars. This gives her the right to sell Singapore dollars at a future date at USD$0\mathrm{.}6500/$SGD each, and then immediately rebuy them in the open market at USD$0\mathrm{.}7004/$SGD each for a profit. $($If her expectation of the future spot rate proves correct.$)$

b$.$ What is Yize's break$-$even price on the option purchased in part $($a$)?$

Yize's breakeven price is USD ISGD. $($Round to five decimal places.$)$

Data table

$($Click on the following icon $$ in order to copy its contents into a spreadsheet.$)$

$\backslash$table$[[$Option$,$Strike Price,Premium$],[$Put on SGD$,$USD$0\mathrm{.}6500=$ SGD$1\mathrm{.}00,$USD$0\mathrm{.}00003$ per SGD$],[$Call on SGD$,$USD$0\mathrm{.}6500=$ SGD$1\mathrm{.}00,$USD$0\mathrm{.}00046$ per SGD$]]$