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Construct a contingency graph for a long euro 1. Currency Bullspreads and Bearspreads. A call option on British pounds (₤) exists with a strike price of $1.56 and a premium of $.08 per unit. Another call option on British pounds has a strike price of $1.59 and a premium of $.06 per unit. (See Appendix B in this chapter.) a. Complete the worksheet for a bullspread below. Value of British Pound at Option Expiration $1.50 $1.56 $1 ...

Other / Other 14 Apr 2016

Speculating with Currency Call Options. LSU Corp. purchased Canadian dollar 1. Currency Call Option Premiums. List the factors that affect currency call option premiums and briefly explain the relationship that exists for each. Do you think an at-the-money call option in euros has a higher or lower premium than an at-the-money call option in Mexican pesos (assuming the expiration date and the total dollar value represented by each opti ...

Other / Other 14 Apr 2016

Brian Tull sold a put option on Canadian dollars 1. Using Currency Futures. a. How can currency futures be used by corporations? b. How can currency futures be used by speculators? 2. Selling Currency Put Options. Brian Tull sold a put option on Canadian dollars for $.03 per unit. The strike price was $.75, and the spot rate at the time the option was exercised was $.72. Assume Brian immediately sold off the Canadian dollars receiv ...

Other / Other 14 Apr 2016

Two British pound (₤) put options are available with exercise 1. Bullspreads and Bearspreads. Two British pound (₤) put options are available with exercise prices of $1.60 and $1.62. The premiums associated with these options are $.03 and $.04 per unit, respectively. (See Appendix B in this chapter.) a. Describe how a bullspread can be constructed using these put options. What is the difference between using put options versu ...

Other / Other 14 Apr 2016

Speculating with Currency Put Options. Auburn Co. has purchased Canadian dollar 1. Currency Put Option Premiums. List the factors that affect currency put options and briefly explain the relationship that exists for each. 2. Speculating with Currency Put Options. Auburn Co. has purchased Canadian dollar put options for speculative purposes. Each option was purchased for a premium of $.02 per unit, with an exercise price of $.86 per ...

Other / Other 14 Apr 2016

When would a U.S. firm consider purchasing a call option 1. Hedging With Currency Options. When would a U.S. firm consider purchasing a call option on euros for hedging? When would a U.S. firm consider purchasing a put option on euros for hedging? 2. Hedging with Currency Derivatives. Assume that the transactions listed in the first column of the following table are anticipated by U.S. firms that have no other foreign transactions. ...

Other / Other 14 Apr 2016

Differentiate between a currency call option and a currency 1. Currency Options. Differentiate between a currency call option and a currency put option. 2. Forward versus Currency Option Contracts. What are the advantages and disadvantages to a U.S. corporation that uses currency options on euros rather than a forward contract on euros to hedge its exposure in euros? Explain why an MNC use forward contracts to hedge committed transa ...

Other / Other 14 Apr 2016

Bama will purchase the pounds on the day the options are exercised 1. Speculating with Currency Call Options. Randy Rudecki purchased a call option on British pounds for $.02 per unit. The strike price was $1.45 and the spot rate at the time the option was exercised was $1.46. Assume there are 31,250 units in a British pound option. What was Randy’s net profit on this option? 2. Speculating with Currency Call Options. Bama Co ...

Other / Other 14 Apr 2016

Profits from Using Currency Options 1. Profits from Using Currency Options and Futures. On July 2, the two-month futures rate of the Mexican peso contained a 2 percent discount (unannualized). There was a call option on pesos with an exercise price that was equal to the spot rate. There was also a put option on pesos with an exercise price equal to the spot rate. The premium on each of these options was 3 percent of the spot rate at t ...

Other / Other 14 Apr 2016

When should a speculator purchase a call option 1. Speculating With Currency Options. When should a speculator purchase a call option on Australian dollars? When should a speculator purchase a put option on Australian dollars? 2. 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 ...

Other / Other 14 Apr 2016