Spot exchange rate in 3 months is $1.27/€. What is the net profit per unit?
Short currency strangle
Call option premium = $0.03/€
Put option premium = $0.02/€
Call option strike price = $1.25/€
Put option strike price = $1.05/€
Maturity = 3 months
(Show All Work)
a. $0.05/€
b. $0.03/€
c. -$0.03/€
d. -$0.05/€
2. Jin Co. executes “Carry Trade”. Use the following information to compute profit or loss.
Borrowing rate on euro for the next month = 0.5%
Rate of return on funds invested in British pounds = 1%
Initial investments
Jin Co.’s own funds: $100,000
Jin Co.’s borrowed funds: €600,000
Current spot exchange rate : €1 = $1.20 & ?1 = $1.8
Future spot exchange rate (in 30 days): the euro appreciated by 3% against both the pound and the dollar (show all work)
a. $4,599
b. $58,110
c. $100,000
d. $104,599