Homework
The Option Speculator Mini-Case is designed to test your knowledge of speculation with currency options.
A speculator is considering the purchase of five three-month Japanese yen call options with a strike price of 96 cents per 100 yen. The premium is 1.35 cents per 100 yen. The spot price is 95.28 cents per 100 yen and the 90-day forward rate is 95.71 cents. The speculator believes the yen will appreciate to $1.00 per 100 yen over the next three months. As the speculator's assistant, you have been asked to prepare the following:
i. In Excel , diagram the call option, profit (or loss) on the y-axis and future spot price on the x-axis.
ii. Determine the speculator's profit if the yen appreciates to $1.00/100 yen.
iii. Determine the speculator's profit if the yen appreciates only to the forward rate.
iv. Determine the future spot price at which the speculator will only break even.
Format your homework according to the following formatting requirements:
i) The answer should be typed, using Times New Roman font (size 12), double spaced, with one-inch margins on all sides.
ii) The response also includes a cover page containing the title of the homework, the student's name, the course title, and the date. The cover page is not included in the required page length.
iii) Also include a reference page. The Citations and references must follow APA format. The reference page is not included in the required page length.