Exam 7: Futures and Options on Foreign Exchange

For European currency options written on euro with a strike price in dollars,what of the effect of an increase in the exchange rate S($/€)?

Today's settlement price on a Chicago Mercantile Exchange (CME)Yen futures contract is $0.8011/¥100.Your margin account currently has a balance of $2,000.The next three days' settlement prices are $0.8057/¥100,$0.7996/¥100,and $0.7985/¥100.(The contractual size of one CME Yen contract is ¥12,500,000).If you have a short position in one futures contract,the changes in the margin account from daily marking-to-market will result in the balance of the margin account after the third day to be

If the call finishes in-the-money what is your replicating portfolio cash flow?

Three days ago,you entered into a futures contract to sell €62,500 at $1.50 per €.Over the past three days the contract has settled at $1.50,$1.52,and $1.54.How much have you made or lost?

Yesterday,you entered into a futures contract to buy €62,500 at $1.50 per €.Suppose the futures price closes today at $1.46.How much have you made/lost?

Calculate the current €/£ spot exchange rate.

Which of the following is correct?

Use the binomial option pricing model to find the value of a call option on £10,000 with a strike price of €12,500. The current exchange rate is €1.50/£1.00 and in the next period the exchange rate can increase to €2.40/£ or decrease to €0.9375/€1.00 . The current interest rates are i_€ = 3% and are i_£ = 4%. Choose the answer closest to yours.

Which equation is used to define the futures price?

For European options,what of the effect of an increase in S_t?

Find the cost today of your hedge portfolio in pounds.

Find the risk neutral probability of an "up" move.

Use your results from the last three questions to verify your earlier result for the value of the call.

Find the value today of your replicating today portfolio in euro.

The current spot exchange rate is $1.55 = €1.00 and the three-month forward rate is $1.60 = €1.00.Consider a three-month American call option on €62,500 with a strike price of $1.50 = €1.00.If you pay an option premium of $5,000 to buy this call,at what exchange rate will you break-even?

A European option is different from an American option in that

With currency futures options the underlying asset is

For European currency options written on euro with a strike price in dollars,what of the effect of an increase in r_$ relative to r_€?

Consider the graph of a call option shown at right.The option is a three-month American call option on €62,500 with a strike price of $1.50 = €1.00 and an option premium of $3,125.What are the values of A,B,and C,respectively?

The current spot exchange rate is $1.55 = €1.00; the three-month U.S.dollar interest rate is 2%.Consider a three-month American call option on €62,500 with a strike price of $1.50 = €1.00.What is the least that this option should sell for?