Multinational Business finance “Eiteman”
problem 9 Giri Contrarian Ch 8
a. Giri believes in the Canadian Dollars, if the rate for the Canadian Dollar is going to rise he should buy a call option on Canadian Dollar and if the rate of the spot goes above the strike price can be profitable for him to buy the Canadian Dollar for less than it is actually worth. The put option may be the good choice if Canadian would depreciate against United States Dollars. b. The break-even point is the point where the buyer don’t loss but don’t gain benefit and it is : Strike price + Premium = 0.7+0.0249 = $0.7249/C$
c. According the book:
Gross profit= Spot Rate - Strike price = $0,7600/C$ - $0,7000/C$ = $0,0600/C$ Net profit= Spot Rate – (Strike price + Premium) = $0,7600/C$ - ($0,7000/C$ + $0,0249/C$) = $0,0351/C$. d. Changing the spot rate we have:
Gross profit= Spot Rate - Strike price = $0,8250/C$ - $0,7000/C$ = $0,1250/C$ Net profit= Spot Rate – (Strike price + Premium) = $0,8250/C$ - ($0,7000/C$ + $0,0249/C$) = $0,1001/C$.
problem 10, Dowining street ch 8
According to “Multinational Business Finance, Eitman, Stonehill and Moffet” I may evaluate the profit as wrote as below: Profit = Strike Price – (Spot rate + Premium)
And we have:
1. Profit = $1,36/£ - ($1,3200/£ + $0,00081/£) = 0,03919 x 250 000 = 9797,5 2. Profit = $1,34/£ - ($1,3200/£ + $0,00021/£) = 0,01979 x 250 000 = 4947,5 3. Profit = $1,32/£ - ($1,3200/£ + $0,00004/£) = -0,00004 x 250 000 = -10 4. Profit = $1,36/£ - ($1,3200/£ + $0,00333/£) = 0,036670 x 250 000 = 9167,5 5. Profit = $1,34/£ - ($1,3200/£ + $0,00150/£) = 0,01850 x 250 000 = 4625 6. Profit = $1,32/£ - ($1,3200/£ + $0,00060/£) = -0,00060 x 250 000 = -150
Looking our data the first put option seems the most profitable, if the exchange evolve such as reported in the text, the time to maturity would not be of any significant importance. The longer maturity options generate less profit, this option would generate monthly...
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