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International Financial Hw Chapter 5- 12, 18, 20,

International Financial Hw Chapter 5- 12, 18, 20, - Chapter...

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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 Mike’s 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 contract price and the futures price?
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