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

Evaluate the crippling load, A cast iron hollow column, having 100mm extern...

A cast iron hollow column, having 100mm external diameter and 80mm internal diameter is used as a column of 2.4 m length. Using Rankine formula, calculate the crippling load, when

Heat loss in acylindrical pipe, Ask question #Minimum 1. Research the topic...

Ask question #Minimum 1. Research the topic of heat loss in a cylindrical pipe. Explain which laws of physics are used to discuss heat loss in a pipe, and briefly explain how the f

Describe poissons ratio, (i) Describe Poisson's Ratio. (ii) A circular r...

(i) Describe Poisson's Ratio. (ii) A circular rod of 100mm diameter and 500 mm length is subjected to a tensile force of 1000 KN. Calculate the modulus of bulk modulus, rigidity

Construction and working of locomotive boiler, CONSTRUCTIO N and WORKING: ...

CONSTRUCTIO N and WORKING: The boiler barrel is cylindrical shell and consists of large number of flue tubes. The barrel comprise of a rectangular fire box at one end and a

#power plant, Components of power plant &it''s functions

Components of power plant &it''s functions

Fourth gear position - shifting of gear, Fourth Gear Position: When g...

Fourth Gear Position: When gear M4 on the main shaft is in mesh with gear C4 on the countershaft then this is known as fourth gear position. The free gear M4 rotates with the

Compare petrol engine with diesel engine, Compare Petrol engine with Diesel...

Compare Petrol engine with Diesel engine with each other ( i ) Basic cycle: Petrol Engine work on Otto cycle whereas Diesel Engine work on diesel cycles. ( i i )

Show pneumatic test, Q. Show Pneumatic Test? Pneumatic testing presents...

Q. Show Pneumatic Test? Pneumatic testing presents hazards that must be addressed as part of the engineering design of the pressure vessel. Due to the additional hazards of

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