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 $0.92 just before the expiration of the call option contract. At this time, you call the contract and immediately sell the Singapore dollars to a bank at the current spot price. Use the drop-down selections to fill in the following table from your (the buyer's) perspective. Note: Assume there are no brokerage fees. Transaction Selling Price of S$ - Purchase Price of S$ Premium Paid for Option Net Profit = Per Unit $0.92 -$0.86 -$0.02 Per Contract $23,000 $18,400 $13,800
Suppose that you are a speculator that anticipates an appreciation of the Singapore dollar (S$). 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 $0.92 just before the expiration of the call option contract. At this time, you call the contract and immediately sell the Singapore dollars to a bank at the current spot price. Use the drop-down selections to fill in the following table from your (the buyer's) perspective. Note: Assume there are no brokerage fees. Transaction Selling Price of S$ - Purchase Price of S$ Premium Paid for Option Net Profit = Per Unit $0.92 -$0.86 -$0.02 Per Contract $23,000 $18,400 $13,800
Chapter5: Currency Derivatives
Section: Chapter Questions
Problem 8QA
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Transcribed Image Text:Suppose that you are a speculator that anticipates an appreciation of the Singapore dollar (S$). 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 $0.92 just before the expiration of the call option contract. At this time, you call the contract and
immediately sell the Singapore dollars to a bank at the current spot price.
Use the drop-down selections to fill in the following table from your (the buyer's) perspective.
Note: Assume there are no brokerage fees.
Transaction
Selling Price of S$
- Purchase Price of S$
Premium Paid for Option
Net Profit
=
Per Unit
$0.92
-$0.86
-$0.02
Per Contract
$23,000
$18,400
$13,800
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