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What is the break-even spot rate for sally

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Reference no: EM132543954

Sally trades currencies for Keystone funds. The current US dollar- Singapore dollar (US$/S$) rate is 0.6 ($0.6/S$). After an in-depth study, Sally concludes that Singapore dollar (S$) will appreciate against US$ in the next 180-days to about $0.7/S$.

She has the following options to choose from:

CALL OPTION, Strike price = $0.65/S$ , Premium = $0.0004/S$

PUT OPTION, Strike price = $0.65/S$ , Premium = $0.0005/S$

Question a) Which option will Sally choose? Why?

Question b) Calculate Profit or Loss of Sally if the spot rate at the maturity is $0.645/S$.

Question c) What is the break-even spot rate for Sally? Calculate

 

Reference no: EM132543954

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