solution

  1. Sallie Schnudel trades currencies for Keystone Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar/Singapore dollar ($/S$) cross-rate. The current spot rate is $0.6000/S$. After considerable study, she has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about $0.7000/S$. She has the following options on the Singapore dollar to choose from:

    Option

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    Strike Price

    Premium

    Put on Sing $

    $0.6500/S$

    $0.00003/S$

    Call on Sing $

    $0.6500/S$

    $0.00046/S$

    Should Sallie buy a put on Singapore dollars?

    Yes

    No

  2. Using your response regarding Sallie purchasing a put or a call, what is Sallie’s gross profit (including premium) if the spot rate at the end of 90 days is indeed $0.7000/S$?

  3. Using your response regarding Sallie purchasing a put or a call, what is Sallie’s net profit (including premium) if the spot rate at the end of 90 days is indeed $0.7000/S$? [to 5-decimal places]

 
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