Describe the key differences between currency futures and options.

1. Describe the key differences between currency futures and options. (8 points)
2. Dec. 2021 Canadian dollar futures is now trading at $0.7850. If you buy one Canadian dollar futures contract (size = C$100,000) at this price and sold it at expiration when its price settles at $0.7920, what is your profit/loss from this transaction? (8 points)
3.(a) Define currency options contract. What are put and call options?
(b) You bought a Dec. 21 put option on euro with a strike price (K) of $1.1850/Є in June 21 and paid a premium of $0.015/£. The current spot exchange (S) rate for euro is $1.1750/£. Contract size = Є125,000
(i) What are the intrinsic and the time values of this option?
(ii) (a) What is the profit/loss if the option is exercised at expiration if the spot rate settles at $1.1650/£? (b) if the spot rate settles at $1.1950? The U.S. interest rate is 2%. (20 points)
4.You own one Nov. 21 call options on Canadian dollar with K = $0.7650 for which you paid a premium of $0.005/C$. The spot exchange rate today is $0.7700.
(i) How would you classify this option today, in-the-money or out-of-the-money?
(ii) What is your profit/loss if you sell this option today when it is trading at a premium of $0.015/C$? Contract size is C$100,000 and the U.S. interest rate is 2%. Assume that you bought this option in Sept 21. (12 points)
5.(a) What is the payoff profile of a buyer and a writer of an option?
(b) What are the drivers of option’s premium? (10 points)

Last Completed Projects