(answered) Cece Cao trades currencies for Sumatra Funds

in Jakarta She

Cece Cao trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time
and attention on the U.S. dollar/Singapore dollar ($/S$) cross-rate. The cur
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sumatra-funds-in-jakarta-she

Cece Cao trades currencies for Sumatra 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_______________ Strike Price_________________Premium
Put on Sing $ ................$0.6500/S$...........................$0.00003/S$
Call on Sing $.....................$0.6500/S$...........................$0.00046/S$
a. Should Cece buy a put on Singapore dollars or a call on Singapore dollars?
b. What is Cece's breakeven price on the option purchased in part (a)?
c. Using your answer from part (a), what is Cece's gross profit and net profit (including premium)
if the spot rate at the end of 90 days is indeed $0.7000/S$?
d. Using your answer from part (a), what is Cece's gross profit and net profit (including
premium) if the spot rate at the end of 90 days is $0.8000/S$?

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