Case-cachita haynes at vatic capital

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Cachita Haynes at Vatic Capital

Cachita Haynes works as a currency speculator for Vatic Capital of Los Angeles. Her latest speculative position is to profit from her expectation that the U.S. dollar will rise significantly against the Japanese yen. The current spot rate is ¥120.00/$. She must choose between the following 90-day options on the Japanese yen: Option Strike Price Premium Put on yen ¥125/$ $0.00003/S$ Call on yen ¥125/$ $0.00046/S$ a. Should Cachita buy a put on yen or a call on yen? b. What is Cachita's breakeven price on the option purchased in part (a)? c. Using your answer from part (a), what is Cachita's gross profit and net profit (including premium) if the spot rate at the end of 90 days is ¥140/$? Assumptions Values Current spot rate (Japanese yen/US$) 120.00 in US$/yen $0.00833 Maturity of option (days) 90 Expected ending spot rate in 90 days (yen/$) 140.00 in US$/yen $0.00714 Call on yen Put on yen Strike price (yen/US$) 125.00 125.00 in US$/yen Premium (US$/yen) $0.00046 $0.00003 a. Should she buy a call on yen or a put on yen? (Choose between a Put or a Call) Cachita should buy a (put or call) on yen to profit from the rise of the dollar (the fall of the yen). b. What is Cachita's break even price on her option of choice in part a)? Cachita buys a put on yen. Pays premium today. In 90 days, exercises the put, receiving US$. in yen/$ Strike price Less premium Breakeven c. What is Cachita's gross profit and net profit if the end spot rate is 140 yen/$? Gross profit Net profit (US$/yen) (US$/yen) Strike price Less spot rate Less premium Profit

Reference no: EM132656450

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