Reference no: EM132466381
Problem: Sallie Schnudel trades currencies for Keystone Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar/Singapore dollar($/S$) cross-rate. The current spot-rate is $.06000/S$. After considerable amount of study , she has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about $.7000/S$. She has the following options on the Singapore dollar to choose from:
Option Strike Price Premium
Put on Sing $ $0.6500/S$ $0.00003/S$
Call on Sing $ $0.6500/S$ $0.00046/S$
a. Should Sallie buy a put on Singapore dollars or a call on Singapore dollars?
In this situation buying a call on the Singapore dollar @ the $.6500/S$ price would be profitable if the Singapore dollar appreciates to $.7000/S$. Buying a call would allow her to buy the S$ at .65 and make a profit of .05 per S$.
b. What is Sallie's break-even price on the option purchased in part (a)?
c. Using your answer from part (a), what is Sallie's gross profit and net profit (including premium) if the spot rate at the end of the 90 days is indeed $0.7000/S$?
d. Using your answer from part (a), what is Sallie's gross profit and net profit (including premium) is the spot rate at the end of 90 days is $.8000/S$?
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