Question

Options Speculator: A speculator is considering the purchase of five three-month Japanese yen call options with a striking price of 96 cents per 100 yen. The premium is 1.35 cents per 100 yen. The spot price is 95.28 cents per 100 yen and the 90-day forward rate is 95.71 cents. The speculator believes the yen will appreciate to $1.00 per 100 yen over the next three months. As the speculator’s assistant, you have been asked to prepare the following:

a.Graph the call option cash flow schedule.

b.Determine the speculator’s profit if the yen appreciates to $1.00/100 yen.

c.Determine the speculator’s profit if the yen only appreciates to the forward rate.d.Determine the future spot price at which the speculator will only break even.

Answer #1

A speculator is considering the purchase of five three-month
Japanese yen call options with an exercise price of $0.0096 per
yen. Each option contract is for 1,000,000 yens. The option premium
is $0.000135 per yen. The spot price is $0.009528 per yen and the
90-day forward rate is $0.009571 per yen. What will be the
speculator’s profit if the yen appreciates to $0.0100 per yen at
option expiration? SHOW YOUR WORK
A speculator is considering the purchase of five three-month...

a. A speculator purchased a call
option on Japanese Yen at a strike price of $0.70 and for a
premium of $.06 per unit. At the
time the option was exercised if the Japanese Yen spot
rate was $.75
a) Find the speculator’s net profit
per unit?
b) If each contract is made up of
62500 units what is the net profit per contract?
c) At which spot price will the
speculator break even?
d) What is the...

Barry speculates in the foreign currency exchange market.
Currently the spot price for the Japanese yen is ¥129/$ and the
6-month forward rate is ¥128 /$. Barry believes the yen will become
¥126.00/$ in the next six months.
To profit as a speculator, Barry should ________ at ________
.
Select one:
a. buy dollars; the forward rate
b. sell yen; the forward rate
c. buy yen; the forward rate
d. buy dollars; spot rate

Apex Corporation of Canada must pay its Japanese supplier Yen
125 million in three months. Apex's CFO is considering to hedge
this transactional risk by purchasing options on Yen, at a strike
price of $0.008/Yen. The option premium is 0.015 cents ($0.00015)
per yen for calls and 0.008 cents ($0.00008) per yen for puts. The
current spot rate is $0.007823/Yen. Apex's treasurer believes that
the most likely value for yen in 90 days is $0.0079, but the yen
could go...

The three-month interest rate on yen is i¥=1% per
annum; the three-month interest rate on euros is i€=5.5%
per annum. Which one of the following statements is correct?
Select one:
a. Based on the Uncovered Interest Rate Parity, the euro is
expected to appreciate by 4.5% against yen next three months.
b. In a carry trade between euro and yen for three months, the
profit will be ¥0.0315(for each yen borrowed) if the euro has
appreciated 2% against yen in...

The three-month
interest rate on yen is i¥=1% per annum; the three-month
interest rate on euros is i€=5.5% per annum. Which one
of the following statements is correct?
Select one:
a. Based on the Uncovered Interest Rate Parity, the euro is
expected to appreciate by 4.5% against yen next three months.
b. To start a carry trade, a trader can short the euro against
yen in three-month forward contracts.
c. According to the asset market approach, the current spot rate...

A financial institution has just bought 6-month European call
options on the Chinese yuan.
Suppose that the spot exchange rate is 14 cents per yuan, the
exercise price is 15 cents per yuan,
the risk-free interest rate in the United States is 2% per annum,
the risk-free interest rate in China
is 4% per annum, and the volatility of the yen is 12% per annum.
Calculate vega of the financial
institution’s position. Check the accuracy of your vega estimate by...

A financial institution has just bought 6-month European call
options on the Chinese yuan. Suppose that the spot exchange rate is
14 cents per yuan, the exercise price is 15 cents per yuan, the
risk-free interest rate in the United States is 2% per annum, the
risk-free interest rate in China is 4% per annum, and the
volatility of the yen is 12% per annum. Calculate vega of the
financial institution’s position. Check the accuracy of your vega
estimate by...

A financial institution has just bought 6-month European call
options on the Chinese yuan. Suppose that the spot exchange rate is
14 cents per yuan, the exercise price is 15 cents per yuan, the
risk-free interest rate in the United States is 2% per annum, the
risk-free interest rate in China is 4% per annum, and the
volatility of the yen is 12% per annum. Calculate vega of the
financial institution’s position. Check the accuracy of your vega
estimate by...

6)The three-month interest rate on yen is i¥=1% per annum; the
three-month interest rate on euros is i€=5.5% per annum. Which one
of the following statements is correct?
Select one:
a. In a carry trade between euro and yen for three months, the
profit will be ¥0.0315(for each yen borrowed) if the euro has
appreciated 2% against yen in the three months.
b. Based on the Uncovered Interest Rate Parity, the euro is
expected to appreciate by 4.5% against yen...

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