Reference no: EM132979929

Questions -

Q1. Assume a speculator purchased a call option on Swiss francs for $.02 per unit. The strike price was $0.45, and the spot rate at expiration was $0.48. Assume there are 62,500 units in a Swiss franc option. What was the net profit on this option to the speculator?

Q2. Assume a speculator purchased a put option on Swiss francs for $.02 per unit. The strike price was $0.49, and the spot rate at expiration was $0.46. Assume there are 62,500 units in a Swiss franc option. What was the net profit (loss) on this option to the speculator?

Q3. Last Monday, the closing exchange rate of Canadian dollar was $0.5882. Calls on C$ which would mature in the next 3 months with a strike price of $0.62 were traded at $0.05.

a) Were the call options in the money, at the money, or out of the money?

b) Compute the intrinsic value of the call.

c) If the exchange rate of Canadian dollar rises to $0.6862 prior to the expiration date, what is the percentage return on investment for an investor who purchased a call on C$ last Monday?

Q4. Based on the previous problem, put options on C$ with the same strike price and expiration date for Canadian dollar were traded at $0.025 on last Monday.

a) Were the put options in the money, at the money, or out of the money?

b) Compute the intrinsic value of the put.

c) If the exchange rate of Canadian dollar falls to $0.5350 just prior to expiration, what is the percentage return on investment for an investor who purchased a put on C$ last Monday?

Q5. An Australian company sells yen futures contracts to cover possible exchange losses on its export orders denominated in Japanese yen. The amount of the initial margin is AUS$50,000, and the maintenance margin is 75% of the initial margin. The value of the company's position declines by AUS$15,000 because the spot rate for yen has increased.

a) Calculate the maintenance margin?

b) Should the broker issue margin calls to the company? And by how much?

Q6. A US speculator enters a futures contract for June delivery of SF125,000 on January 26. The futures exchange rate is $0.65/SF. He believes that the spot rate for Swiss franc at the maturity date will be $0.70/SF. The margin requirement is 2%.

a) If his expectations are correct, what would be his rate of return on the investment?

b) If the spot rate for Swiss franc on the maturity date is 5% lower than the futures exchange rate, how much would he lose on the futures speculation?

c) If there is a 70% chance that the spot rate for Swiss franc will increase to $0.70 at the maturity date, would you speculate in the futures market?