Fred Schwed is a currency speculator who enjoys \"betting\" on changes in the fo

Question

Fred Schwed is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Fred thinks the yen will move to ¥128.00/$ in the next six months. If Fred buys $100,000 worth of yen at today's spot price and sells within the next six months at ¥128/$ he will earn a profit of

A) $101,460.94

B) $146.09

C) $1460.94

D) nothing; he will lose money

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 41) The writer of the option is referred to as the seller, and the buyer of the option is referred to as the holder. 42) Foreign currency options are available both over-the-counter and on organized exchanges. 43) Andrea Cujoli is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Andrea would earn a higher rate of return by buying yen and a forward contract than if she had invested her money in 6-month US Treasury securities at an annual rate of 2.50%. 44) Other things equal, the price of an option goes up as the volatility of the option decreases. 45) Which of the following is NOT a factor in determining the premium price of a currency option? A) The standard deviation of the daily spot price movement. B) The time to maturity. C) The present spot rate. D) All of the above are factors in determining the premium price. 51) The following would be an example of a policy, not a goal. A) Management shall maximize shareholder's wealth. B) Management will hire only happy employees. C) Management will not write uncovered options. D) Management shall minimize the firm's overall weighted average cost of capital. 57) An interbank-traded contract to buy or sell interest rate payments on a notional principal is called a/an ________. A) forward rate agreement B) interest rate swap C) interest rate future D) none of the above

Explanation / Answer

Fred will lose the money because he is buying 1$ =¥129.87 and after 6 months he sells it for ¥128 that means he is buying with high price and selling at low price. Hence he will lose the money

41) it is true People who buy options are called holders and those who sell options are called writers

42) it is true Foreign currency options are available both over-the-counter and on organized exchanges.

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