Chap08 Pbms MBF12e

Chap08 Pbms MBF12e - Problem 8.1 Peregrine Funds - Jakarta...

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Problem 8.1 Peregrine Funds -- Jakarta Option choices on the Singapore dollar: Call on S$ Put on S$ Strike price (US$/Singapore dollar) $0.6500 $0.6500 Premium (US$/Singapore dollar) $0.00046 $0.00003 Assumptions Values Current spot rate (US$/Singapore dollar) $0.6000 Days to maturity 90 Expected spot rate in 90 days (US$/Singapore dollar) $0.7000 a) Should Samuel buy a put on Singapore dollars or a call on Singapore dollars? b Using your answer to part (a), what is Samuel's breakeven price? Per S$ Strike price $0.65000 Note this does not include any interest cost on the premium. Plus premium $0.00046 Breakeven $0.65046 Gross profit Net profit (US$/S$) (US$/S$) Spot rate $0.70000 $0.70000 Less strike price ($0.65000) ($0.65000) Less premium ($0.00046) Profit $0.05000 $0.04954 Gross profit Net profit (US$/S$) (US$/S$) Spot rate $0.80000 $0.80000 Less strike price ($0.65000) ($0.65000) Less premium ($0.00046) Profit $0.15000 $0.14954 Samuel Samosir trades currencies for Peregrine Funds in Jakarta. He focuses nearly all of his time and attention on the U.S. dollar/Singapore dollar ($/S$) cross-rate. The current spot rate is $0.6000/S$. After considerable study, he has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about $0.7000/S$. He has the following optons on the Singapore dollar to choose from: Since Samuel expects the Singapore dollar to appreciate versus the US dollar, he should buy a call on Singapore dollars. This gives him the right to BUY Singapore dollars at a future date at $0.65 each, and then immediately resell them in the open market at $0.70 each for a profit. (If his expectation of the future spot rate proves correct.) c) Using your answer to part (a), what is Samuel's gross profit and net profit (including premium) if the spot rate at the end of 90 days is indeed $0.70/S$? d) Using your answer to part (a), what is Samuel's gross profit and net profit (including premium) if the spot rate at the end of 90 days is $0.80/S$?
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Problem 8.2 Paulo's Puts a) b) c) d) e) f) g) Assumptions Values Values Values Values Values Values Values 12,500,000 12,500,000 12,500,000 12,500,000 12,500,000 12,500,000 12,500,000 Maturity (days) 180 180 180 180 180 180 180 $0.008000 $0.008000 $0.008000 $0.008000 $0.008000 $0.008000 $0.008000 $0.000080 $0.000080 $0.000080 $0.000080 $0.000080 $0.000080 $0.000080 110.00 115.00 120.00 125.00 130.00 135.00 140.00 $0.009091 $0.008696 $0.008333 $0.008000 $0.007692 $0.007407 $0.007143 Gross profit on option $0.000000 $0.000000 $0.000000 $0.000000 $0.000308 $0.000593 $0.000857 Less premium ($0.000080) ($0.000080) ($0.000080) ($0.000080) ($0.000080) ($0.000080) ($0.000080) ($0.000080) ($0.000080) ($0.000080) ($0.000080) $0.000228 $0.000513 $0.000777 Net profit, total ($1,000.00) ($1,000.00) ($1,000.00) ($1,000.00) $2,846.15 $6,407.41 $9,714.29 Paulo writes a put option on Japanese yen with a strike price of $0.008000/¥ (¥125.00/$) at a premium of 0.0080 cents per yen and with an expiration date six month from
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This note was uploaded on 03/17/2011 for the course BUS M 432 taught by Professor Nedhill during the Winter '11 term at BYU.

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Chap08 Pbms MBF12e - Problem 8.1 Peregrine Funds - Jakarta...

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