Currency bull spread and bear spread, Mechanical Engineering

Assignment Help:

Currency Bull Spread and Bear Spread:

A currency bull spread is constructed by buying a call option for a particular underlying currency and simultaneously writing a call option for the same currency with a higher strike price. Suppose that a spreader buys a call option on Australian dollars with a strike price $0.64 and a call premium of $0.019 and writes a call option on the same Australian dollars but with a strike price of $0.65 and a premium of $0.015. An option contract on Australian dollars consists of 50,000 units.

Required:

(a) Calculate the net profit (loss) for the bull spreader if the Australian dollar appreciates to $0.645 at the option expiration.

(b) Calculate the net profit (loss) for the bull spreader if the Australian dollar appreciates to $0.70 at the option expiration. Do you think a further appreciation of A$ would lead a higher profit for the spreader?

(c) Draw a contingency graph for the currency bull spread assuming that possible exchange rate will be any of the following: $0.60, $0.64, $0.645, $0.65, and $0.70.

(d) Repeat (c) assuming that the spreader writes the $0.64 option and buys the $0.65 option. Note that it is the case of currency bear spread.

Note: A currency bull spread can be constructed by a combination of put options too. To construct a put bull spread, the spreader would buy a put option with a lower strike price and write a put option with a higher strike price.


Related Discussions:- Currency bull spread and bear spread

Circulation pumps, Are the types of pumps selected (base mounted, in-line)?...

Are the types of pumps selected (base mounted, in-line)? Locate pump on discharge side of boiler. Flexible connector used. Valving indicated, isolation valve on suction and dis

Kinematics, how do you find the projectile motion or equation?

how do you find the projectile motion or equation?

Compute the magnitude and direction of the force, Compute the magnitude and...

Compute the magnitude and direction of the force: Problem: Compute the magnitude and direction of the force F¯ = (320 N) i¯ + (450 N) j¯ - (600 N) k¯ Solution

What are the rules important when designing castings, What are the rules wh...

What are the rules which must be kept in mind when designing castings? Some of the points which should be kept in mind during the process of cast designing are as follows: >

Fingerprint based on vehicle staring system, Hello sir, i would like to ask...

Hello sir, i would like to ask you if is possible to show me a sample of programing code which is used in arduino uno while programming fingerprint based on vehicle starting system

Axis of symmetry, Axi s of symmetry If in diagram half part of diagram...

Axi s of symmetry If in diagram half part of diagram is mirror image of next ½ part, then there is a symmetry in diagram. The axis at which symmetry is create, called as axis

Thermal, how do i solve for thickness of insulation when i only have the r ...

how do i solve for thickness of insulation when i only have the r value

Sound waves in gases, Sound Waves in Gases Sound waves are longitudinal...

Sound Waves in Gases Sound waves are longitudinal pressure waves. Let us consider the motion of a plane sound wave moving along  X-axis  in a gas medium. In undisturbed positio

Mechanical properties in composite materials, Composite materials consist ...

Composite materials consist of two or more distinct components.  Generally we refer to a matrix and a reinforcement .  The reinforcement can be in the form of fibres (continuous

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd