Options, Futures

Section A QUESTION 1 a) FORWARDS: iWork testament enter into a forward contract to mete appear USD one C billion for INR 5500 million(fixed aim of USD 1 = INR 55) by and byward 12 months. * If INR appreciates (to say 1 USD = 50 INR), the value magnetic variation 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 ( coke million USD at 50 INR for 1 USD later on 12 months) or iWork can take a want position in a Call pick (5000 million INR at 1 INR for 0.02 USD after 12 months) 1USD = 40 INR PAY support wont betray . Sell at 50 INR 1USD = 60 INR Fig 1.1 - Long be sick 100 million USD at 50 INR for 1 USD after 12 months 1INR =0.03 USD PAY PREMIUM Wont debase. Buy at 0.02 INR 1INR = 0.01 USD Fig 1.2 - Long CALL 5000 mi llion INR at 1 INR for 0.02 USD after 12 months QUESTION 2 fit in 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 decease if the same is born-again into INR at todays spot rate we would hand 5000 INR. This when invested in India would give us around 5400 INR. So in effect the forward rate should be more wherein holding 100 USD for a year should yield at least 5400 INR. wherefore it should be greater than 50. QUESTION 3 Farmer wants to cheat 1000 MT Unit of Delivery at NCDEX is 10 MT Therefore, the bend of future contracts the Farmer can barter = 1000/10 = 100 The sodbuster can trade in 100 stalk future contracts after 3 months at a expense assumed as 100 INR per contract . Pros: (i) The farmer has hedged him! self against a price decrease (ii) Doesnt tie up much majuscule He...If you want to get a full essay, order it on our website: BestEssayCheap.com

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