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Unformatted text preview: Chapter 5 #12, 18 and 20 12. Selling Currency Call Options. Mike Suerth sold a call option on Canadian dollars for $.01 per unit. The strike price was $.76, and the spot rate at the time the option was exercised was $.82. Assume Mike did not obtain Canadian dollars until the option was exercised. Also assume that there are 50,000 units in a Canadian dollar option What was Mikes net profit on the call option? Premium Received per unit = $.01 The strike price = $.76 Spot rate when exercised = $.82 Net profit per unit [($.76-$.82)+$.01] = $.05 net profit= [50,000 units ($.05)] = $2,500 18. Speculating with Currency Futures. Assume that a March futures contract on Mexican pesos was available in January for $.09 per unit. Also assume that forward contracts were available for the same settlement date at a price of $.092 per peso. How could speculators capitalize on this situation, assuming zero transaction costs? How would such speculative activity affect the difference between the forward zero transaction costs?...
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This note was uploaded on 03/27/2012 for the course FINANCE 100 taught by Professor Donavan during the Spring '12 term at Alabama.
- Spring '12