# Since we choose not to exercise the put option the

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Since we choose not to exercise the put option, the loss on the put option is only thepremium we paid: \$0.01/S\$ X S\$1,000,000 = \$10,000 USD Loss on the put option
(2) Recalculate the gain/loss on each of these option contracts if the spot turn on June 18,2016 turns out to be \$0.45 USD per Singapore dollar.
We will sell the S\$1,000,000 through the put option and receive USD payment. Weexpect to receive:(\$0.55/S\$ - \$0.01/S\$) X S\$1,000,000 = \$540,000 USDWithout the put option, we have to sell the Singapore dollar in the market and we willonly receive: (\$0.45/S\$) X S\$1,000,000 = \$450,000 USD.Thus, we gain \$90,000 in the put option.Alternatively, just calculate the gain by using the formula: (X- St – premium) X contractsize for a long position in the put option = (0.55 – 0.45 – 0.01) X 1,000,000 = \$90,000gain(3) If your firm has a subsidiary firm in Singapore and your firm expects to receiveS\$1,000,000 Singapore dollar earnings remitted from the subsidiary three months later(in June 2016). Which option contract can help you hedge the foreign exchange rate riskin converting the Singapore dollar into the US dollar?
(4) Draw a payoff diagram for a long position in the call option and a long position in the putoption respectively. On the diagram, show the strike price, breakeven price and thepremium cost for each option contract.

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Term
Spring
Professor
DanielA.Rivetti
Tags
United States dollar, USD, Strike price, Singapore dollar