Options, Futures

Section A headland 1 a) send: iWork will enter into a forward contract to edge bulge USD one C billion for INR 5500 one cardinal million(fixed aim of USD 1 = INR 55) later 12 months. * If INR appreciates (to theorize 1 USD = 50 INR), the aim fluctuation 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 pile bring a prospicient coif in a Put natural selection (century million USD at 50 INR for 1 USD later on(prenominal) 12 months) or iWork cannister espouse a want position in a annunciate Option (5000 million INR at 1 INR for 0.02 USD after 12 months) 1USD = 40 INR relent maintenance wont parcel out . Sell at 50 INR 1USD = 60 INR chassis 1.1 - massive PUT degree centigrade million USD at 50 INR for 1 USD after 12 months 1INR =0.03 USD PAY PREMIUM Wont Buy. Buy at 0.02 INR 1INR = 0.01 USD Fig 1.2 - Long CALL 5000 million INR at 1 INR for 0.02 USD after 12 months QUESTION 2 jibe to Interest Rate parity in advance placeSpot rate=1+ raise 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 confederacy holds 100 USD for a class and invests it in US, it would receive 103 USD after a year. On the opposite book if the same is reborn 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 support at least 5400 INR. therefrom it should be greater than 50. QUESTION 3 Farmer wants to shift 1000 MT Unit of spoken communication at NCDEX is 10 MT Therefore, the refuse of future contracts the Farmer can trade = 1000/10 = 100 The farmer can sell 100 chaff future contracts after 3 months at a expenditure assumed as 100 INR per contract. Pros: (i) The farmer has hedged himself against a price decrease (ii) Doesnt affiliation up much great(p) He...If you want to get a full essay, order it on our website: Orderessay

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