Reference no: EM133075687

1. Assume that 90-day U.S. securities have a 5.0% annualized interest rate, whereas 90-day Canadian securities have a 5.5% annualized interest rate. In the spot market, 1 U.S. dollar can be exchanged for 1.5 Canadian dollars. If interest rate parity holds, what is the 90-day forward exchange rate between U.S. and Canadian dollars?

2. The spot exchange rate is 1.54 dollars per pound. The 30-day forward exchange rate is 0.6211 pounds per dollar. Therefore, pounds in the forward market are selling at a_____ to the current spot rate.

3. The 90 days yen to dollar (¥/$) forward exchange rate is 110.50, meanwhile the spot rate (¥/$) rate is 110.38.

a) Calculate the annualized forward premium.

b) Calculate the annualized forward discount.

4. You bought one call option of MAS share at RM4 with an exercise price of RM20.

a) Find out the value of the call option and then calculate the pay-off and the profit if MAS share price in the future is:

i) RM30

ii) RM 20

iii) RM 10

b) What is the MAS share price if the buyer of call option wants to break even?

5. Put option of MAS share is RM4 and its exercise price is RM20.

a) Find out whether the value of put option is in-the-money or out-of-the money. Then, calculate the pay-off and the profit if MAS share price goes to

i) RM30

ii) RM 20

iii) RM10

b) What is the MAS share price if the buyer of put option wants to break even?

c) What is the maximum profit for the buyer of put option?