Determine the total dollar amount of lees profit

Reference no: EM133491599

Question: Six-month ago, Jan Lee sold a call option on 100,000 American dollars (USD) with anexpiration date of six-month. He received CNYO.40 per USD as the call premium.The exercise price was CNY5.2560/USD. Assume that, the spot rate of the USD atthe date the option was sold was CNY5.2150/USD. At the same day, USD six-month forward rate exhibited a premium of 3%, and thesix-month futures price was the same as the six-month forward rate. During the sixmonths, USD has appreciated against the CNY by 4%. Today the buyer of call optionexpects to exercise the option.

Question 1. What effect does "marking to market" have on futures contract? explain.

Question 2. Determine the total dollar amount of Lee's profit or loss from his position inthe call option.

Question 3. If Less sold a futures contract instead of taking a position in the call optionsix-month ago, what would be his profit or loss?

Reference no: EM133491599

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