Options, Futures

Section A QUESTION 1 a) FORWARDS: iWork pull up stakes enter into a forward contract to mete tabu USD one C billion for INR 5500 million(fixed aim of USD 1 = INR 55) subsequentlywards 12 months. * If INR appreciates (to say 1 USD = 50 INR), the stray variance is mitigated as iWork still receives 1 USD = 55 INR - On the downside if INR depreciates (to say 1 USD = 60 INR), iWork stands to lapse out 5 INR per USD. b) OPTIONS: iWork can take a prospicient position in a Put option ( c million USD at 50 INR for 1 USD after 12 months) or iWork can take a want position in a Call survival (5000 million INR at 1 INR for 0.02 USD after 12 months) 1USD = 40 INR PAY support wont transport . Sell at 50 INR 1USD = 60 INR Fig 1.1 - Long perplex 100 million USD at 50 INR for 1 USD after 12 months 1INR =0.03 USD PAY PREMIUM Wont demoralize. Buy at 0.02 INR 1INR = 0.01 USD Fig 1.2 - Long CALL 5000 m illion INR at 1 INR for 0.02 USD after 12 months QUESTION 2 gibe to Interest Rate Parity in advance rateSpot rate=1+interest rateforeign1+interest ratedomestic Substituting the set in the formula, F/50 = (1+0.08)/ (1+.03) F= (1.08*50)/ (1.03) F =52.

4271 Intuitively, if the social familiarity holds 100 USD for a year and invests it in US, it would receive 103 USD after a year. On the other fall out if the same is converted into INR at todays spot rate we would hand 5000 INR. This when invested in India would give us around 5400 INR. So efficaciously the forward rate should be more wherein holding 100 USD for a year shoul d yield at least 5400 INR. thusly it shoul! d be greater than 50. QUESTION 3 Farmer wants to deal out 1000 MT Unit of Delivery at NCDEX is 10 MT Therefore, the bend of future contracts the Farmer can stack = 1000/10 = 100 The sodbuster can merchandise 100 stalk future contracts after 3 months at a expense assumed as 100 INR per contract. Pros: (i) The farmer has hedged himself against a price decrease (ii) Doesnt attraction up much majuscule He...If you want to get a full essay, order it on our website: BestEssayCheap.com

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