1. Assume the current spot rate of the euro is $1.33 and the forward rate for the euro is $1.31, while the annualized forward discount of the euro is -3.03%. How many days is the forward contract?
2. Bulldog, Inc., has bought British pound call options at a premium of $.015 per unit, and an exercise price of $1.569 per unit. It has forecasted the Australian dollar’s lowest level over the period of concern as $1.549, $1.559, $ 1.569, $1.579 and $1.589. Determine the net profit (or loss) per unit to Bulldog, Inc., if each Australia dollar each level occurs (show detailed analysis; follow the five steps in the teaching notes).
3. Assume that a bank's ask rate on Euro is $1.1635 and bid-ask percentage spread is .5%, what is the bid price of Euro?
4. One year ago, you sold a call option on 10 million pounds with an expiration date of one year. You received a premium on the call option of $.02 per unit. The exercise price was $1.21. Assume that one year ago, the spot rate of the pound was $1.551, the one-year forward rate exhibited a premium of 4.5%, and the one-year futures price was the same as the one-year forward rate. From one year ago to today, the pound appreciated against the dollar by 3 percent. Today the call option will be exercised (if it is feasible for the buyer to do so).
a. Determine the total dollar amount of your profit or loss from your position in the call option.
b. Now assume that instead of taking a position in the call option one year ago, you sold a futures contract on 10 million pounds with a settlement date of one year. Determine the total dollar amount of your profit or loss.