17. Suppose the spot ask exchange rate, Sa ($|£), is $1.90 = £1.00 and the spot bid exchange rate, Sb ($|£), is $1.89 = £1.00. If you were to buy $10,000,000 worth of British pounds and then sell them five minutes later, how much of your $10,000,000 would be “eaten” by the bid-ask spread? A. $1,000,000
B. $52,910
C. $100,000
D. $52,632
20. Yesterday, you entered into a futures contract to buy €125,000 at $1.50 per €. Suppose the futures price closes today at $1.46. How much have you made/lost?
A. You have made $5,000.00.
B. You have lost $5,000.00.
C. Depends on your margin balance.
D. You have lost $2,500.00
21. Boeing has a future payable £5 million in one year. They can use either forward contract for options to eliminate their risk exposure. According to the following information, which rate is the break-even point between option hedge and forward hedge? The U.S. interest rate: 6.00% per annum. The U.K. interest rate: 6.50% per annum. The spot exchange rate: $1.80/£. The forward exchange rate: $1.75/£ (1-year maturity). The option premium: $0.0018/£
A. $1.731/£
B. 1.312/£
C. 1.123/£
D. 1.232/£
22. Find the value of a call option written on €100 with a strike price of $1.00 = €1.00. In one period, there are two possibilities: the exchange rate will move up by 15 percent or down by 15 percent (i.e. $1.15 = €1.00 or $0.85 = €1.00). The U.S. risk-free rate is 5 percent over the period. The risk-neutral probability of dollar depreciation is 2/3 and the risk-neutral probability of the dollar strengthening is 1/3.
A. $9.5238
B. $0.0952
C. $0
24. Yesterday, you entered into a futures contract to buy €62,500 at $1.50 per €. Your initial performance bond is $1,500 and your maintenance level is $500. At what settle price will you get a demand for additional funds to be posted (margin call)?
A. $1.5160 per €.
B. $1.208 per €.
C. $1.1920 per €.
D. $1.4840 per €.
25. If the one-year interest in Australian dollar is 4% and the interest rate in U.S. dollar is 2% What will be the one-year forward premium or discount for the $USD/AUD exchange rate?
A. 1.92%
B. 2.78%
C. 3.49%
D. 4.52%