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Unformatted text preview: 117.760 5.04% Three-month forward rate ( /$) 116.830 4.88% One-year forward rate ( /$) 112.450 5.16% Money rates, % per annum United States Japan 1 month 4.8750% 0.09375% 3 months 4.9375% 0.09375% 12 months 5.1875% 0.31250% options Strike (yen/$) Premium 3-month call option on yen 118.000 1.8% 3-month put option on yen 118.000 3.0% 3-month put option on yen 115.000 2.0% a) What are the costs and benefits of alternative hedges: remain unhedged, money market hedge, forward hedge, put option hedge. b) What is the breakeven reinvestment rate when comparing forward and money market alternatives? c) What is the break-even spot rate when comparing the put option and forward alternatives? d) How to construct a short position in a synthetic forward with a forward price of F 3 (/$)=118, ( selling at forward at 118/$)?...
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- Spring '11
- International Finance