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. T-bills 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 one-year put option on $15,000 with a strike price of €10,000. In one year the exchange rate (currently S0($/€) = $1.50/€) can increase by 60% or decrease by 37.5% (i.e. u = 1.6 and d = 0.625). The current one-year interest rate in the U.S. is i$= 4% and the current one-year 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 three-month forward rate is $1.60 = €1.00. Consider a three-month 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

Answer

· 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 marking-to-market 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).

Answer

· Question 24

3 out of 3 points

The current spot exchange rate is $1.55 = €1.00 and the three-month forward rate is $1.60 = €1.00. Consider a three-month 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 break-even?

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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 1-period at-the-money 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?

Answer

· Question 29

3 out of 3 points

For European options, what of the effect of an increase in St?

Answer

· Question 30

3 out of 3 points

An “option” is

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