Question

4 pts Question 21 The current spot exchange rate is $1.65 = €1.00 and the three-month forward rate is $1.50 = €1.00. Consider a three-month American put option on €62,500 with a strike price of $1.65 1.00. If you pay an option premium of $5,000 to buy this put, at what exchange rate will you break-even? $1.57-1.00 $1.42 = 1.00 $1.47-1.00 $1.65 1.00

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

U W BOEING 787 26 MILLION File Home Insert Page Layout References Mailings Review View Find Cut T Aa Calibri (Body) 11 EE A A AaBbCcD AaBbCcDc AaBbC AaBbCc AaB 4aBbCc. AaBb CcD ab Replace Copy в I-ahe х, х A Paste A T Normal Change Styles Subtle Em. T No Spaci... Heading 1 Heading 2 Title Subtitle Format Painter Select Clipboard Font Paragraph Styles Editing 2 1 IX:I- 1: 1: 2 :1: 3-.4. EI6 I7 I:8I 9 I10 I11 ' I 12 .I 13 - M IIS A I17 18 put option: $5000 put option premium payable Dollar amount receivable at exercise price 62500 x $1.65 = $103125 Now put option will be exercised only if price on expiry is below $1.65, otherwise not So in any case minimum amount receivable 103125 - 5000 $98125 So breakeven exchange rate = $98125/62500 $1.57 Answer: $1.65 = 1 euro English (India) E =140 % : 1,169 | Pa W 01:43 m E ENG 16-06-2019