2. These options are traded in the market: call option with an Exercise (Strike) Price of 1.15 $/€ and premium (option cost) of 0.03 $ per euro. (a) If the Spot exchange rate is 1.17 $/ €, is the option ITM, ATM or OTM? (b) Calculate Intrinsec value and Time value of the option. (c) If put options are traded with same Exercise Price at same cost of 0.03 $ per euro and Fwd for the same maturity is traded at 1.17 $/€, how can an astute trade arbitrage? Explain. (d) Calculate Intrinsec value and Time value of the put option mentioned above.

2. These options are traded in the market: call option with an Exercise (Strike) Price of 1.15 $/€ and premium (option cost) of 0.03 $ per euro. (a) If the Spot exchange rate is 1.17 $/ €, is the option ITM, ATM or OTM? (b) Calculate Intrinsec value and Time value of the option. (c) If put options are traded with same Exercise Price at same cost of 0.03 $ per euro and Fwd for the same maturity is traded at 1.17 $/€, how can an astute trade arbitrage? Explain. (d) Calculate Intrinsec value and Time value of the put option mentioned above.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You write a call option with a strike of $1.473/£ and a premium of $0.72. The current spot exchange rate is $1.434/£. What is the option's intrinsic value?
2. Suppose the exchange rate of euro at current spot market is $1.25/€. If a call option has a strike price of $1.28/€ then we can say this option is a) inthemoney b) outofthemoney c) atthemoney d) past breakeven 3. Suppose the exchange rate of euro at current spot market is $1.25/€. If a put option has a strike price of $1.18/€ then we can say this option is a) inthemoney b) outofthemoney c) atthemoney d) past breakeven 4. According to our class discussion, suppose a U.S. based real estate developer is participating in a bid competition for a land in London. What of the followings can provide the best protection when Pound is expected to appreciate a) Call options b) buy futures c) sell forwards d) buy forwards 5. Which of following activities dominates foreign exchange transactions a) multinational corporations buying and selling foreign exchange b) importers and exporters buying and selling foreign exchange c) banks buying and selling foreign exchange d)…
Suppose the exchange rate of euro at current spot market is $1.25/€. If a put option has a strike price of $1.18/€ then we can say this option is a) inthemoney b) outofthemoney c) atthemoney d) past breakeven
which one is corect please confirm? Q8: An option that gives the owner the right to sell a financial instrument at the exercise price within a specified period of time is a put option call option swap premium
which one is correct please confirm? Q9: An option that gives the owner the right to buy a financial instrument at the exercise price within a specified period of time is a call option put option American option European option
Suppose you took a long position on a put option with an exercise price of $1.95 per pound and paid a premium $0.20 per pound. Required: a. If the spot exchange rate turns out to be $2.10 per pound on the maturity date, is the put option in-, at-, or out-of-the-money? b. If the spot exchange rate turns out to be $2.10 per pound on the maturity date, will you exercise this option? c. If the spot rate at maturity turns out to be $1.90 per pound, is the contract in-, at-, or out-of-the-money? d. If the spot rate at maturity turns out to be $1.90 per pound, will you exercise this option? The option is Will you exercise this option? Spot Rate $2.10 Spot Rate $1.90
Consider a call option selling for Ksh.14 in which the exercise price is Ksh.162 and the price of the underlying is Ksh.164. Determine the value at expiration and the profit for a buyer under the following outcomes: The price of the underlying at expiration is Ksh.164. The price of the underlying at expiration is Ksh.158.
a) Assume that call currency option enable to buy of dollar for Shs. 50.00 while it is quotedat Shs. 50.70 in the spot market, and premium paid for call currency option is Shs. 1.00.a)Calculate the intrinsic value of the call? b) Discuss the value of hedging to a firm.
A financial institution has the following portfolio of over-the-counter options on GBP (sterling, UK currency): Type Position Delta of Option Gamma of Option Vega of Option Call -1,000 0.5 2.2 1.8 Call -500 0.8 0.6 0.2 Put -2,000 Call -500 -0.40 0.70 1.3 0.7 1.8 1.4 A traded option is available with a delta of 0.3, a gamma of 1.7, and a vega of 0.8. To make the portfolio both gamma-neutral and delta-neutral, you will take a (long/short) position in the traded option. You will also take a (long/short) position in GBP. How many GBP (i.e. don't worry about L/S, just write how many GBP)? Assume that all implied volatilities change by the same amount so that vegas can be aggregated. Enter your answer rounded to the nearest integer, skip the currency sign. For example, if your calculation results in GBP 9,876.1234567, you only need to enter 9876
A put option has a strike price of MYR3.00/SGD. If the option is exercised before maturity, what price in the followings would maximize gain? a. MYR3.00/SGD. b. MYR2.90/SGD. c. MYR3.05/SGD. d. MYR2.95/SGD.
From the perspective of the writer (seller) of a put option written on£31.250. If the strike price is $1.60/f, and the option premium is$1,250, at what exchange rate do you break even?O $1.64/£O $1.54/£O $1.60/€O $1.56/
Consider a portfolio that consists of the following four derivatives: 1) a put option written(sold) with strike price K − 5, 2) a call option purchased with strike price K − 5, 3) a call option written(sold) with strike price K + 5, and 4) a put option purchased at strike price K + 5. All options are European.The risk-free rate is rf , the time to expiration is T, the initial stock price is S0, and the stock price atmaturity is ST . What are the payoffs at expiration of this portfolio? What must the price of this portfoliobe?

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