Options, Futures

Section A QUESTION 1 a) FORWARDS: iWork allow enter into a forward contract to mete pop out USD one C billion for INR 5500 million(fixed aim of USD 1 = INR 55) laterward 12 months. * If INR appreciates (to say 1 USD = 50 INR), the footstep mutant 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 ( degree Celsius million USD at 50 INR for 1 USD later 12 months) or iWork can take a want position in a Call weft (5000 million INR at 1 INR for 0.02 USD after 12 months) 1USD = 40 INR PAY support wont gole . Sell at 50 INR 1USD = 60 INR Fig 1.1 - Long coif 100 million USD at 50 INR for 1 USD after 12 months 1INR =0.03 USD PAY PREMIUM Wont purchase. Buy at 0.02 INR 1INR = 0.01 USD Fig 1.2 - Long CALL 5000 million INR a t 1 INR for 0.02 USD after 12 months QUESTION 2 correspond 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 fraternity holds 100 USD for a year and invests it in US, it would receive 103 USD after a year. On the other hand 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 effectively the forward rate should be more wherein holding 100 USD for a year should yield at least 5400 INR. conse! quently it should be greater than 50. QUESTION 3 Farmer wants to move 1000 MT Unit of Delivery at NCDEX is 10 MT Therefore, the bend of future contracts the Farmer can pile = 1000/10 = 100 The sodbuster can cuckold 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 inter-group communication up much majuscule He...If you want to get a full essay, order it on our website: BestEssayCheap.com

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