Question
In: Finance
If you believe the Brazilian real will fall from the present spot rate of $0.2255 /...
If you believe the Brazilian real will fall from the present spot rate of $0.2255 / Brazilian real, which speculative strategy would yield the largest speculative gain? a. buy futures on Brazilian real b. buy call options on the Brazilian real c. none of the other answers d. sell futures on Brazilian real.
Solutions
Expert Solution
Correct answer is D.
Sell future on brazilian real.
A future contract is to buy and sell specified asset (physical or financial) at a specified price on a specified future date. If one is anticipating that the price of the asset will increase in future he will buy a future. It means he will enter into a contractual agreement to buy the asset at the price decided today so that he can preserve himself from the price rise.
Here, you believe the Brazilian real will fall from the present spot rate, then speculative strategy that would yield the largest speculative gain will be to enter in to contract to sell the asset on present spot rate in future.
-->. buy call options on the Brazilian real is not a correct option as call option gives right to buy the asset at the strike price decided today. Here the anticipation is for price fall, right to buy option will not provide gain.
Hope it clarifies !
jeff jeffy answered 1 year agoRelated Solutions
If you believe the Brazilian real will fall from the present spot rate of $0.2255 /...
If you believe the Brazilian real will fall from the present
spot rate of $0.2255 / Brazilian real, which speculative strategy
would yield the largest speculative gain? a. buy futures on
Brazilian real b. none of the other answers c. buy call options on
the Brazilian real d. sell futures on Brazilian real
The spot rate for the Brazilian Real is $0.1845/R$. The interest rate is 3% in the...
The spot rate for the Brazilian Real is $0.1845/R$. The interest
rate is 3% in the U.S. and 7% in Brazil.
a) If the 90-day forward rate is $0.1810, can you arbitrage with
these rates? If yes, use $1,000,000 or R$1,000,000 as the notional
amount.
b) what spot rate will prevent this arbitrage, everything else
being constant?
The spot exchange rate between the dollar and the Brazilian real is a flexible rate. What...
The spot exchange rate between the
dollar and the Brazilian real is a flexible rate. What are the
effects of each of the following events on this exchange rate?
Evaluate the effect of each event independently of the others. It
is sufficient to identify whether the U.S. dollar appreciates or
depreciates.
There is a decrease in Brazilian demand for U.S.-made vehicles
as the Brazilian economy is in a recession.
There is an increase in the U.S. demand for Brazilian-made
aircraft. ...
Suppose the spot exchange rate between Brazilian real and euros is S0BRL∕EUR= BRL 2.9488∕EUR. Calculate forward...
Suppose the spot exchange rate between Brazilian real and euros
is S0BRL∕EUR= BRL 2.9488∕EUR. Calculate forward exchange rates at
1-year,2-year, and 3-year horizons under these two scenarios. a.
Yield curves in euros and real are flat. Annual Eurocurrency
interest rates are iBRL= 5 percent and iEUR= 1 percent for the next
several years.
b. The euro yield curve is flat at iEUR= 1.0 percent per year.
Brazilian real interest rates are 5.5 percent per year at a 1-year
horizon, 5.0...
You believe that 6 months from now, the 12-month treasury spot rate will be 7%. You...
You believe that 6 months from now, the 12-month treasury spot
rate will be 7%. You believe that 1 year from now, the 6-month
treasury spot rate will be 6.00%. Given the treasury spot rates
below, which of the following strategies would generate the highest
return?
Term
Spot Rate
6-month
4.00%
12-month
4.20%
18-month
4.50%
24-month
4.90%
30-month
5.40%
36-month
5.70%
42-month
6.00%
48-month
6.40%
Invest in an 18-month treasury.
Invest in a 12-month treasury, at maturity reinvest proceeds in...
You believe that 6 months from now, the 12-month treasury spot rate will be 7.00%. You...
You believe that 6 months from now, the 12-month treasury spot
rate will be 7.00%. You believe that 1 year from now, the 6-month
treasury spot rate will be 6.00%. You believe that 18 months from
now, the 6-month treasury spot rate will be 5%. Given the treasury
spot rates below, which of the following strategies would generate
the highest return?
Term
Spot Rate
6-month
4.00%
12-month
4.20%
18-month
4.50%
24-month
4.90%
30-month
5.40%
36-month
5.70%
42-month
6.00%
48-month
6.40%...
Currently, the spot rate is $1.28/£. As a trader, you believe that the British pound will...
Currently, the spot rate is $1.28/£. As a trader, you believe
that the British pound will appreciate significantly in the near
future. You decide to speculate by buying a December call option
with a strike price of $1.35/£ and a premium of $0.05/£. Please
answer the following questions:
1. Explain briefly why buying a call option makes sense in this
case.
2. How much is the intrinsic value of the option? And how much
is the time value?
3. Please...
Currently, the spot rate is $1.33/£. As a trader, you believe that the British pound will...
Currently, the spot rate is $1.33/£. As a trader, you believe
that the British pound will depreciate significantly in the near
future. You decide to speculate by buying a December put option
with a strike price of $1.35/£ and a premium of $0.05/£. Please
answer the following questions:
1. Explain briefly why buying a put option makes sense in this
case.
2. How much is the intrinsic value of the option? And how much
is the time value?
3. Please...
Currently, the spot rate is $1.33/£. As a trader, you believe that the British pound will...
Currently,
the spot rate
is $1.33/£.
As a trader,
you believe
that the British
pound will
depreciate
significantly
in the near future. You
decide to
speculate by buying
a Decemberput
option
with a
strike
price of
$1.35/£
and a
premium
of$0.05/£.
Please answer
the following questions:
1.
Explain
briefly
why buying
a put
option makes
sense in this
case.
2. How much is
the intrinsic value of the option? And how much is the time
value?
3.
Please fill
in...
Currently, the spot rate is $1.28/£. As a trader, you believe that the British pound will...
Currently, the spot rate is $1.28/£. As a trader, you believe
that the British pound will appreciate significantly in the near
future. You decide to speculate by buying a December call option
with a strike price of $1.35/£ and a premium of $0.05/£. Please
answer the following questions:
1. Explain briefly why buying a call option makes sense in this
case.
2. How much is the intrinsic value of the option? And how much
is the time value?
3. Please...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Toady and Froggy were running a vegan cafe together. The business was having financial difficulties.Betelguese, who...
- 1. The following questions concern Jesse Gelsinger who suffered from partial OTC. a. In the...
- Pittman Company is a small but growing manufacturer of telecommunications equipment. The company has no sales...
- TzeMay was one of the first women engineering students at ABC University. She graduated in 1995...
- Use the following information to calculate these various solvency measures: a) NWC, B) WCR, c) Current...
- The files SpeedControl.java and SpeedControlPanel.java contain a program (and its associated panel) with a circle that...
- Calculate the ideal age of a spouse. Enter either m or f from the keyboard in...
ADVERTISEMENT