Question

• QUESTION 18

  18.    If Tom uses the forward contract, he will receive, in net, ________ for his royalty payment if the spot price of the pound is at its low value, $1.62, and ______ if the pound hits its high value, $1.70.

  A. 4.98M; 5.10M                             

  B. 4.95M; 4.95M

  C. 4.86M; 5.10M   

  D. 4.86M; 4.95M                   

  E. none of the above

• QUESTION 19

  19.    If Tom uses the put option, he will receive, in net, ____ for his royalty payment if the spot price of the pound in the future is at its low value, $1.62, and ____ if the pound hits its high value, $1.70.

  A. 4.980M; 4.980M                        

  B. 4.980M; 5.100M                                  

  C. 4.920M; 5.100M     

  D. 4.917M; 5.100M                        

  E. 4.917M; 5.037M

• QUESTION 20

  20.    Suppose Tom purchases the put option. Suppose too that the person on the other side of the contract, Kerry, also in the US, simply uses the spot market to complete her transaction with Tom and close out her position in dollar terms.  If the spot price of the pound in the future is at its low value, $1.62, Kerry makes ____________ and if the pound hits its high value, $1.70, she makes __________ (the answer below is expressed in dollar terms).

  A. +.060M; +.060M                        

  B. −.060M; +.060M

  C. −.057M; +.063M     

  D. −.12M; +.025M                 

• QUESTION 21

  21. Consider the following assets: A zero-coupon 20,000 Swiss franc treasury bill that sells at discount for 17,777.78 Swiss francs and a 1000 Euro zero-coupon bill that sells at discount for 800 Euro. Both bills mature in 3-months’ time. The Euro is currently trading at 3.00 Swiss francs. If uncovered interest parity holds, we can expect that in three months’ time the value of the Euro will trade at

  A. 1.80 Swiss francs

  B. 1.78 Swiss francs                     

  C. 2.50 Swiss francs                     

  D. 2.70 Swiss francs

  E. None of the above.

Answer 1

Detailed answer is provided in the hand written notes below.