noExcel plz.You believe the US dollar will depreciate relative to the peso and appreciate relative to...

noExcel plz.You believe the US dollar will depreciate relative to the peso and appreciate relative to the pound over the next 3 months. You decide to create a portfolio consisting of 4 three-month peso call contracts and 4 three-month pound put contracts to speculate on your belief. The call contracts have 5,000 pesos attached and have a strike price and premium of $.08 and $.03, respectively. The put contracts have 6,000 pounds attached and have a strike price and premium of $1.4 and $.06, respectively.

Find the value of your portfolio (in USD) if the spot rates at expiration are as follows: $.13/peso, $1.37/pound

-80 -1120 1120 320 None of the above

8…..Find the value of your portfolio (in USD) if the spot rates at expiration are as follows: $.07/peso, $1.3/pound. Round intermediate steps to four decimals and your final answer to two decimals.

Expert Solution

if the spot rates at expiration are as follows: $.13/peso, $1.37/pound :

Profit on each peso call contract = (spot price at expiration - strike price - premium paid) = ($0.13 - $0.08 - $0.03) = $0.02

profit on 4 peso call contracts = $0.02 * 5,000 * 4 = $400

Profit on each pound put contract = (strike price - spot price at expiration - premium paid) = ($1.4 - $1.37 - $0.06) = -$0.03

profit (loss) on 4 peso call contracts = $0.03 * 6,000 * 4 = $720

value of portfolio = $400 - $720 = -$320.00

The answer is none of the above

if the spot rates at expiration are as follows: $.07/peso, $1.3/pound :

The peso contract expires out-of-money. Hence loss on peso contract = premium paid. Loss on each peso call contract = premium paid = $0.03

loss on 4 peso call contracts = $0.03 * 5,000 * 4 = $600

Profit on each pound put contract = (strike price - spot price at expiration - premium paid) = ($1.4 - $1.30 - $0.06) = $0.04

profit on 4 peso call contracts = $0.04 * 6,000 * 4 = $960

value of portfolio = $960 - $600 = $360.00

jeff jeffy answered 1 year ago

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