Determine dollar amount of your profit or loss from buying

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The U.S. 3-month interest rate (unannualized) is 3 percent. The Canadian 3-month interest rate (unannualized) is 7 percent. Interest rate parity exists. The expected inflation over this period is 5 percent in the United States and 3 percent in Canada. A call option with a 3-month expiration date on Canadian dollars is available for a premium of $0.03 and a strike price of $0.58. The spot rate of the Canadian dollar is $0.6. Assume that you believe in purchasing power parity.

Problem 1: Determine the dollar amount of your profit or loss from buying a call option contract specifying C$100,000. Use a minus sign to enter a loss, if any. Do not round intermediate calculations. Round your answer to the nearest dollar.

Problem 2: Determine the dollar amount of your profit or loss from buying a futures contract specifying C$100,000. Use a minus sign to enter a loss, if any. Do not round intermediate calculations. Round your answer to the nearest dollar.

 

Reference no: EM132764235

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