Homework Answers
Ans:- (a) In this question, it is given that Calandra believes that the Canadian dollar will appreciate versus the U.S dollar over the coming 90 days. Therefore Calandra should by the call on C$ at the strike price i.e $7003 with the premium charged i.e $0.00048 and then she should sell the Canadian dollar when the value appreciates in the spot market so that she can gain Profit.
The best option will be Option (b) Since Calandra expects the Canadian dollar to appreciate versus the U.S dollar she should buy a call on the Canadian dollar.
(b) The break-even for Calandra on call option purchased will be given by (Strike Price + Premium)
=$0.7003 + $0.00048 = $0.70078.
(c) If the Spot Rate is $0.7602 at the end of the 90 days then Calandra Gross profit and Net profit for will be given by
Calandra Gross Profit for will be given by (Spot rate - Strike Price)
=$0.7602 - $0.7003 = $0.0599.
Calandra Net profit will be given by (Spot Price - Strike Price - Premium)
=$0.7602 - $0.7003 - $0.00048 =$0.05942.
(d) If the Spot Rate is $0.8248 at the end of the 90 days then Calandra Gross profit and Net profit for will be given by
Calandra Gross Profit for will be given by (Spot rate - Strike Price)
=$0.8248 - $0.7003 =$0.1245.
Calandra Net profit will be given by (Spot Price - Strike Price - Premium)
=$0.8248 - $0.7003 - $0.00048 = $0.12402
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