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/£
Sixmonth forward rate
..............................................................................
$1.3500/£
Sixmonth 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
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document2.
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.
This is the end of the preview.
Sign up
to
access the rest of the document.
 Fall '05
 Branch
 ........., Horst Schmidt

Click to edit the document details