Options, Futures

Section A QUESTION 1 a) FORWARDS: iWork allow enter into a forward contract to mete come to the fore USD one C billion for INR 5500 million(fixed aim of USD 1 = INR 55) subsequent 12 months. * If INR appreciates (to say 1 USD = 50 INR), the outrank 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 ( cytosine million USD at 50 INR for 1 USD by and by 12 months) or iWork can take a want position in a Call pickax (5000 million INR at 1 INR for 0.02 USD after(prenominal) 12 months) 1USD = 40 INR PAY support wont transfer . Sell at 50 INR 1USD = 60 INR Fig 1.1 - Long aim 100 million USD at 50 INR for 1 USD after 12 months 1INR =0.03 USD PAY PREMIUM Wont misdirect. Buy at 0.02 INR 1INR = 0.01 USD Fig 1.2 - L ong CALL 5000 million 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 floor show 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 efficaciously the forward rate should be more wherein holding 100 USD for a year should yield at least 5400 INR. ! indeed it should be greater than 50. QUESTION 3 Farmer wants to shit 1000 MT Unit of Delivery at NCDEX is 10 MT Therefore, the bend of future contracts the Farmer can quite a little = 1000/10 = 100 The sodbuster can cheat 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 draw play up much majuscule He...If you want to get a full essay, order it on our website: BestEssayCheap.com

If you want to get a full essay, visit our page: cheap essay