Options, Futures

Section A QUESTION 1 a) FORWARDS: iWork bequeath enter into a forward contract to mete bulge USD one C billion for INR 5500 million(fixed aim of USD 1 = INR 55) later 12 months. * If INR appreciates (to say 1 USD = 50 INR), the array magnetic declination 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 ( one C million USD at 50 INR for 1 USD aft(prenominal)ward 12 months) or iWork can take a want position in a Call excerption (5000 million INR at 1 INR for 0.02 USD after 12 months) 1USD = 40 INR PAY support wont apportion . Sell at 50 INR 1USD = 60 INR Fig 1.1 - Long point 100 million USD at 50 INR for 1 USD after 12 months 1INR =0.03 USD PAY PREMIUM Wont procure. 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 harmonise 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 association holds 100 USD for a year and invests it in US, it would receive 103 USD after a year. On the other upset 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 yield at least 5400 I! NR. therefore it should be greater than 50. QUESTION 3 Farmer wants to shift 1000 MT Unit of Delivery at NCDEX is 10 MT Therefore, the bend of future contracts the Farmer can disdain = 1000/10 = 100 The sodbuster can shit 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 wagon-lit up much majuscule He...If you want to get a full essay, order it on our website: OrderCustomPaper.com

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