INt++l+Finance++HW+3++2011

INt++l+Finance++HW+3++2011 - Problem set #3 Futures and...

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Problem set #3 Int’l Finance Futures and Options Dr. A.Sohrabian 1. You have the following quotations and expectations for the British pound: Present spot rate ....................................................................................... $1.3200/£ Six-month forward rate .............................................................................. $1.3500/£ Six-month call option on pounds at a strike price of $1.32 and a premium of 4 cents per pound on the Philadelphia Stock Exchange Your expectation for the spot rate in six months. ..................................... $1.3700/£ Assume you have $5,000,000 with which to speculate. Ignore transaction cost, taxes, and interest that might be earned on idle cash balances. 1. If your expectations prove correct, what would be your dollar profit from speculating in the spot market? 1. What risks are associated with this operation? 2. How much capital must be committed? 2. If your expectations prove correct, what would your dollar profit from speculating via the forward market? 1. What risks are associated with this operation? 2. How much capital must be committed? 3. If your expectations prove correct, what would be your dollar profit from speculating via the option market? 1. What risks are associated with this operation? 2. How much capital must be committed? Problemset3 1
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2. Horst Schmidt is considering buying ten call options on Swiss franc on the Philadelphia Stock Exchange at a strike price of 54 cents per pound. The contract size is SF62, 500. The option will expire in three months.
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This note was uploaded on 12/13/2011 for the course ECON 161B taught by Professor Branch during the Fall '05 term at UC Irvine.

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INt++l+Finance++HW+3++2011 - Problem set #3 Futures and...

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