You are a currency speculator in NY. You are willing to risk money on your own opinion about future currency prices.

You may speculate in the (1) spot, (2) forward, and (3) option markets (buyers position). Using the quotations below, show the rates of return (p.a.) for three possibilities of speculation for 6 months. You have $1,000,000 with which to speculate.

Spot rate: $0.5855/SF

Spot rate after 6 months (your position): $0.6100/SF

6 month forward rate: $0.5765/SF

6 months option;

Call, Strike price $0.5850/SF, Premium $0.004/SF

Put, Strike price $0.5850/SF, Premium $0.003/SF