Question

Jurses / FIN710STACKED-STACKED-34731-SUMMER2019 / Module 2 / Practice Exam 2 Suppose that you enter into a long position on a 6-month pound forward today and lock-in the price of $1.50 (the forward rate). If at the maturity (6 month from now) the spot rate turns out to be $1.70, what is your gain or loss? The contract size is 100,000 pounds. Select one: C a. A gain of $20,000 O b. A gain of $16, 2000 c. A loss of $20,000 O d. A loss of $150,000 e. A gain of $150,000 Next page tontiene investn minn

Answer 1

At expiry forward price=spot price

Hence profit after 6 month =Contrac size*price difference=100000*(1.7-1.5)=$20000

Option a is correct

Premium of the call option=time value+intrinsic value

or, 5=2+intrinsic value

or, Intrinsic Value=3

or, Spot Price-Strike Price=3

or, Spot Price-63=3

or Spot Price=63+3=66

Option e is correct