FINC 439 – International Finance – CT Homework #2: Due Friday, Feb. 28
1) Assume you have calculated the forward premium on the Swiss franc using the formula for the direct quote: (F – S) / S x 12 / n
.0153 x 2 = .0306 = 3.06% forward premium on the Swiss franc
The spot rate is U$1.120 /SF.
Show the 6-month forward rate on the Swiss franc as a function of the Spot rate and the forward premium (p) over six-months.
F = S(1+p)
= U$ 1.154
2) You would like to profit from exchange rate fluctuations by the use of currency futures contracts. The pound is currently trading at $1.66 / £, with a June futures contract trading at $1.62 / £. You ...view middle of the document...
00900 | | $0.00900 |
Premium (US$/yen) | | $0.00050 | | $0.00010 |
| | | | |
a) Should she buy a call on yen or a put on yen? | | | | |
b) What is Kaherine’s break even price on her option of choice in part a)?
c) What is Katharine's gross profit and net profit if the end spot rate is $0.0096/yen?
d) What is Katharine's gross profit and net profit if the end spot rate is $0.0088/yen?
4) Samuel Samson works for Peregrine Investments in Jakarta, Indonesia. He focuses his time and attention on the U.S. dollar/Singapore dollar ($/S$) exchange rate. The current spot rate is $0.6000/S$. After considerable study, he has concluded that the Singapore dollar will depreciate versus the U.S. dollar in the coming 90 days, probably to about $0.6600/S$. He has the following options on the Singapore dollar to choose from: |
Option choices on the Singapore dollar: | | Call on S$ | | Put on S$ |
Strike price (US$/Singapore dollar) | | $0.6100 | | $0.6100 |
Premium (US$/Singapore dollar) | | $0.003 | | $0.014 |