Cece Cao in Jakarta. Cece Cao trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar/Singapore dollar ($/S$) cross-rate. The current spot rate is $0.6000/S$. After considerable study, she has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about $0.7000/S$. She has the following options on the Singapore dollar to choose from:

Option Strike Price Premium
Put on Sing $ $0.6500/S$ $0.00003/S$
Call on Sing $ $0.6500/S$ $0.00046/S$
a. Should Cece buy a put on Singapore dollars or a call on Singapore dollars?
b. What is Cece's break-even price on the option purchased in part (a)?
c. Using your answer from part (a), what is Cece's gross profit and net profit (including premium) if the spot rate at the end of 90days is indeed $0.7000/S$?
d. Using your answer from part (a), what is Cece's gross profit and net profit (including premium) if the spot rate at the end of 90 days is $0.8000/S$?

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23-03-2020
Business

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Cece Cao in Jakarta. Cece Cao trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar/Singapore dollar ($/S$) cross-rate. The current spot rate is $0.6000/S$. After considerable study, she has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about $0.7000/S$. She has the following options on the Singapore dollar to choose from:

Option Strike Price Premium
Put on Sing $ $0.6500/S$ $0.00003/S$
Call on Sing $ $0.6500/S$ $0.00046/S$
a. Should Cece buy a put on Singapore dollars or a call on Singapore dollars?
b. What is Cece's break-even price on the option purchased in part (a)?
c. Using your answer from part (a), what is Cece's gross profit and net profit (including premium) if the spot rate at the end of 90days is indeed $0.7000/S$?
d. Using your answer from part (a), what is Cece's gross profit and net profit (including premium) if the spot rate at the end of 90 days is $0.8000/S$?

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aquialaska aquialaska · Answer 1 · 2020-03-27T16:31:01+01:00

Explanation:

a. Cece suppose the Singapore to appreciate versus the U.S. dollar, she will bought Singapore dollars. She will get the right to buy the Singapore dollar in the date of future at $0.6500/S$ each, and therefore in the open market she can quickly resell them at $0.7001/S$ each for her profit. (if her expectation is right for future.)

b. Break even Price = Strike price US$ + Premium US$

= 0.6500 + 0.00046

= US$0.65046

c. Gross Profit and Net Profit

Gross profit = Spot rate US$ - Strike price US$

= $0.7001 - $0.00046

= $0.04964$S

Net profit = Spot rate US$ - Strike price US$ - Premium US$

= $0.7001 - $0.00046 - $0.00046

= $0.04964$S

d. Gross Profit and Net Profit

Gross profit = Spot rate US$ - Strike price US$

= $0.8006 - $0.6500

= $0.1506$S

Net Profit = Spot rate US$ - Strike price US$ - Premium US$

= $0.8006 - $0.6500 - $0.00046

= $0.15014$S