Suppose that you are a speculator that anticipates an appreciation of the Singapore dollar (S$). You purchase a call option contract on Singapore dollars. Each contract represents S$25,000, with a strike price of $0.86 and call option premium of $0.02 per unit. Suppose that the spot price of the Singapore dollar is $0.92 just before the expiration of the call option contract. At this time, you call the contract and immediately sell the Singapore dollars to a bank at the current spot price. Now consider this scenario from the perspective of the individual or firm that sold you the call option. Note: Assume there are no brokerage fees. Use the drop-down selections to fill in the following table from the sellers perspective. Transaction Selling Price of S$ - Purchase Price of S$ + Premium Paid for Option = Net Profit Per Unit $0.86 -$0.92 $0.02 Per Contract $21,500 $12,900 $27,950
Suppose that you are a speculator that anticipates an appreciation of the Singapore dollar (S$). You purchase a call option contract on Singapore dollars. Each contract represents S$25,000, with a strike price of $0.86 and call option premium of $0.02 per unit. Suppose that the spot price of the Singapore dollar is $0.92 just before the expiration of the call option contract. At this time, you call the contract and immediately sell the Singapore dollars to a bank at the current spot price. Now consider this scenario from the perspective of the individual or firm that sold you the call option. Note: Assume there are no brokerage fees. Use the drop-down selections to fill in the following table from the sellers perspective. Transaction Selling Price of S$ - Purchase Price of S$ + Premium Paid for Option = Net Profit Per Unit $0.86 -$0.92 $0.02 Per Contract $21,500 $12,900 $27,950
Chapter5: Currency Derivatives
Section: Chapter Questions
Problem 8QA
Related questions
Question
Transcribed Image Text:Suppose that you are a speculator that anticipates an appreciation of the Singapore dollar (S$). You purchase a call option contract on Singapore
dollars. Each contract represents S$25,000, with a strike price of $0.86 and call option premium of $0.02 per unit.
Suppose that the spot price of the Singapore dollar is $0.92 just before the expiration of the call option contract. At this time, you call the contract and
immediately sell the Singapore dollars to a bank at the current spot price.
Now consider this scenario from the perspective of the individual or firm that sold you the call option.
Note: Assume there are no brokerage fees.
Use the drop-down selections to fill in the following table from the sellers perspective.
Transaction
Selling Price of S$
- Purchase Price of S$
+ Premium Paid for Option
= Net Profit
Per Unit
$0.86
-$0.92
$0.02
Per Contract
$21,500
$12,900
$27,950
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 1 steps
Recommended textbooks for you