No covered interest arbitrage opportunities

Assignment Help Financial Management

Reference no: EM131910275

1. A put option has an exercise price of $1.36/€ and a premium of $.015/€. A call option has an exercise price of $1.36/€ and a premium of $.035/€. Individual option contracts are for €25,000. You sell 3 puts and sell 1 call. Your profit/loss if the spot rate when the option matures is $1.25/€ is $_________ and your profit/loss if the spot rate when the option matures is $1.45/€ is $_________.

2. No covered interest arbitrage opportunities and interest rate parity holing imply the same thing.

A. True

B. False

3. Jerry buys a call option on the EURO. Darla writes the call option that Jerry buys. The strike price is $1.33/€ and the premium is $.04/€. What is the breakeven ST for Jerry and Darla?

4. Interest rate parity suggests that if interest rates are 3% higher in Japan than in the U.S., the U.S. dollar should exhibit a forward (approximations are fine)

A. Premium of about 2%

B. Discount of about 3%

C. Premium of about 3%

D. Discount of about 9%

E. Discount of about 4%

Reference no: EM131910275

Questions Cloud

What is the total incremental cash flow for project : Project Z will result in unit sales of 2,250, at a price of $650 each. What is the total incremental cash flow for Project Z?

Highly correlated with economic conditions : Suppose a firm has sales that are highly correlated with economic conditions. Short-term interest rates are also pro-cyclical.

Triangular arbitrage tends to enforce relationship : Triangular arbitrage tends to enforce a relationship between the interest rates if two countries and their forward exchange rate premium or discount.

Compute npv statistic for project : Compute the NPV statistic for Project Y if the appropriate cost of capital is 12 percent.

No covered interest arbitrage opportunities : No covered interest arbitrage opportunities and interest rate parity holing imply the same thing.

Firm is considering investment opportunity : Your firm is considering an investment opportunity. Your firm has paid $50,000 for engineering, site surveys, and environmental impact studies.

What is its after-tax salvage value : what is its after-tax salvage value if the equipment is actually sold after 2 years for $1,250,000?

Estimate of the wacc for your computer sales? division : What is an estimate of the WACC for your computer sales? division?

Compounded monthly on some short-term investment : Which alternative works out best for the Holms if they can earn 6% compounded monthly on some short-term investment – paying the taxes now or on the due date?

User Account

All Pages