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. none of the other answers c. buy call options on the Brazilian real d. sell futures on Brazilian real
Solutions
Expert Solution
Strategy that shall yield largest speculative gain is = d. sell futures on brazilian real
Now, selling futures means taking short position .Under short position, the investor shall enter into a contract to sell at a future date,
If the price of Brazilian real is possible to fall from present spot rate, then selling future shall be a profitable strategy.Selling future contract means that at a future date investor shall sell stock at the already contracted price, and if price will decline then investor shall be able to sell at a already contracted price which is higher than existing price. This strategy shall lead to profits.
On the other hand starategy of buying future shall lead to loss, because buying future means buying stock at a future contracted date at the already agreed price. In such a case if price falls then the investor shall be buying at a higher contracted price.
Also, if investor buys call option and becomes call buyer, and if price declines in future, then in that case the exercise price shall be higher than the existing market price and incur losses.
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. buy call options on the Brazilian real c. none of
the other answers 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
- Use the bond term's below to answer the question Maturity 7 years Coupon Rate 4% Face...
- What experience have you had with Organization Development or with Change Management? Describe the organization, the...
- 1. Renfro Rentals has issued bonds that have a 12% coupon rate, payable semiannually. The bonds...
- Given an array of positive integers a, your task is to calculate the sum of every...
- Define “culture.” Software is defined by the Merriam-Webster Dictionary as "the programs that run on a...
- In humans, hypotrichosis (sparse body hair) is a rare autosomal recessive condition. Let h = hypotrichosis...
- Increase all of the listing prices by 5% for all listings under $500,000 and 10% for...
ADVERTISEMENT