Question

(a) Consider a one-period binomial model in which the underlying is at 65 and can go up 30% or down 22%. The risk-free rate is 8%. Determine the price of a put option with exercise prices of 70.

(b) How cryptocurrencies can impact any economy? Explain the legal status of cryptocurrencies in Pakistan

Answer 1

A) Please find attached the solution to option price question

B) Crypto currency's imapact in any economy can be manifold and can be postive as well as negative.

Following are some of the positives:

1) It can help eliminate the need for middlemen (Banks) in financial transactions because of the decentralized nature of of its accounting and verification

2) Initial Coin offering is a method by which comapnies can raise money bypassing the traditional route of rasing capital.

3) It makes transactions faster, cheaper, transparent, reliable, and eliminates need for middle men

4) Crypto currency facilitates cheaper international transaction and access to international transaction even without a bank account. this can help developing countries engage with the world's internet economy. It eliminates geographical boundaries when it comes to transactions as it can be traded around the world

But there are many negatives to it too:

1) makes it easier to fund illegal activities and difficult for authorities to intervene in illegal financial transactions

2) The price of cryptocurrency can be highly volatile and hence a little unsafe as of now.

3) It makes it difficult to regualte fiancial activities of any economy

4) Cryptocurrency makes it easy for people to avoid paying taxes,which can be a uge concern for governments and the economy as a whole.

Legal Status of Cryptocurrency in Pakistan: As of 7 April 2018, State Bank of Pakistan has announced that bitcoin and other virtual currencies/tokens/ coins are banned in Pakistan for organizations and institutions. Bank will not get involved if there is any dispute. also, they will not facilitate any transaction for it.