BUSINESS
uestion 15
3 out of 3 points
Suppose that you are the treasurer of IBM with an extra US$1,000,000 to invest for six months. You are considering the purchase of U.S. Tbills that yield 1.810% (that’s a six month rate, not an annual rate by the way) and have a maturity of 26 weeks. The spot exchange rate is $1.00 = ¥100, and the six month forward rate is $1.00 = ¥110. The interest rate in Japan (on an investment of comparable risk) is 13 percent. What is your strategy?
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· Question 16
3 out of 3 points
Find the value of a oneyear put option on $15,000 with a strike price of €10,000. In one year the exchange rate (currently S_{0}($/€) = $1.50/€) can increase by 60% or decrease by 37.5% (i.e. u = 1.6 and d = 0.625). The current oneyear interest rate in the U.S. is i_{$}= 4% and the current oneyear interest rate in the euro zone is i_{€}= 4%.
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· Question 17
3 out of 3 points
For European currency options written on euro with a strike price in dollars, what of the effect of an increase in the exchange rate S(€/$)?
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· Question 18
3 out of 3 points
Most exchange traded currency options
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· Question 19
3 out of 3 points
The current spot exchange rate is $1.55 = €1.00 and the threemonth forward rate is $1.60 = €1.00. Consider a threemonth American call option on €62,500 with a strike price of $1.50 = €1.00. Immediate exercise of this option will generate a profit of
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· Question 20
3 out of 3 points
Today’s settlement price on a Chicago Mercantile Exchange (CME) Yen futures contract is $0.8011/¥100. Your margin account currently has a balance of $2,000. The next three days’ settlement prices are $0.8057/¥100, $0.7996/¥100, and $0.7985/¥100. (The contractual size of one CME Yen contract is ¥12,500,000). If you have a short position in one futures contract, the changes in the margin account from daily markingtomarket will result in the balance of the margin account after the third day to be
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· Question 21
3 out of 3 points
Which equation is used to define the futures price?
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· Question 22
0 out of 3 points
Yesterday, you entered into a futures contract to buy €62,500 at $1.50 per €. Suppose the futures price closes today at $1.46. How much have you made/lost?
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· Question 23
3 out of 3 points
Find the hedge ratio for a put option on $15,000 with a strike price of €10,000. In one period the exchange rate (currently S($/€) = $1.50/€) can increase by 60% or decrease by 37.5% (i.e. u = 1.6 and d = 0.625).
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· Question 24
3 out of 3 points
The current spot exchange rate is $1.55 = €1.00 and the threemonth forward rate is $1.60 = €1.00. Consider a threemonth American call option on €62,500 with a strike price of $1.50 = €1.00. If you pay an option premium of $5,000 to buy this call, at what exchange rate will you breakeven?
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· Question 25
3 out of 3 points
American call and put premiums
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· Question 26
3 out of 3 points
Find the dollar value today of a 1period atthemoney call option on €10,000. The spot exchange rate is €1.00 = $1.25. In the next period, the euro can increase in dollar value to $2.00 or fall to $1.00. The interest rate in dollars is i_{$} = 27.50%; the interest rate in euro is i_{€}= 2%.
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· Question 27
3 out of 3 points
For European currency options written on euro with a strike price in dollars, what of the effect of an increase in r_{$} relative to r_{€}?
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· Question 28
3 out of 3 points
Yesterday, you entered into a futures contract to sell €62,500 at $1.50 per €. Your initial performance bond is $1,500 and your maintenance level is $500. At what settle price will you get a demand for additional funds to be posted?
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· Question 29
3 out of 3 points
For European options, what of the effect of an increase in S_{t}?
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· Question 30
3 out of 3 points
An “option” is
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