Even complicated and confusing topics will be easily developed and covered if you request our help writing an essay. Place an order today!

Chapter 7 Foreign Currency Derivatives:Futures and Options 1.   Foreign Currency Futures. What is a foreign currency future? A future is an exchange-traded contract calling for future delivery of a standard amount of foreign currency at a fixed time, place, and price. A future requires a mandatory delivery. The future is a standardized exchange-traded contract often used as an alternative to a forward foreign exchange agreement. 3.   Long and a Short. How do you use foreign currency futures to speculate on the exchange rate movements, and what role do long and short positions play in that speculation? Short Positions. If a currency speculator believes that a foreign currency will fall in value versus the U.S. dollar (home currency) by a specific date, she could sell that date futures contract, taking a short position. By selling that date contract, the speculator locks in the right to sell the foreign currency at a set price—a price that the speculator believes would be higher than the spot rate in the market on that future date. Long Positions. If a currency speculator believes that a foreign currency will rise in value versus the home currency by a specific date, she should buy a specific future date future on the foreign currency. By buying a currency future, the speculator is locking in the price to buy the foreign currency, which the speculator expects to be higher in value at that date, therefore generating a profit. 4.   Futures and Forwards. How do foreign currency futures and foreign currency forwards compare? Foreign currency futures contracts differ from forward contracts in a number of important ways. Individuals find futures contracts useful for speculation because they usually do not have access to forward contracts. For businesses, futures contracts are often considered inefficient and burdensome because the futures position is marked to market on a daily basis over the life of the contract. Although this does not require the business to pay or receive cash daily, it does result in more frequent margin calls from its financial service providers than the business typically wants. 7.   Put Contract Elements. The CME exchange-traded American put option has a contract size of €125,000; the December puts with a strike price of 1.2900 are now quoted at 0.0297. Explain what these figures mean for a put buyer. A put option owner has the right, but not the obligation, to sell €125,000 at $1.2900 per euro until the option expires next December. If the option owner exercises this right, he receives $161,250 = 125,000 × 1.29 in exchange for €125,000 from the option writer. 8.   Premiums, Prices & Costs. What is the difference between the price of an option, the value of an option, the premium on an option, and the cost of a foreign currency option? They all mean the same thing. The price of an option is its premium, its cost, and its value. 9.   Three Prices. What are the three different prices or “rates” integral to every foreign currency option contract? All currency options have three fundamental prices or rates: (1) the current spot rate;( 2) the chosen strike rate; and (3) the option premium. 10. Writing Options. Why would anyone write an option, knowing that the gain from receiving the option premium is fixed but the loss if the underlying price goes in the wrong direction can be extremely large? As with all options, what the holder gains, the writer loses, and vice versa. If the writer of a call option already owns the currency, the writer would be effectively “covered” if the option ends up being call against the writer. The writer, however, will still experience an opportunity loss, surrendering against the option the same currency that could have been sold for more in the open market. From the option writer’s point of view, only two events can take place: The option is not exercised. In this case, the writer gains the option premium and still has the underlying stock. The option is exercised. If the option writer owns the stock and the option is exercised, the option writer (1) gains the premium and (2) experiences only an opportunity cost loss. In other words, the loss is not a cash loss, but rather the opportunity cost loss of having foregone the potential of making even more profit had the underlying shares been sold at a more advantageous price. This is somewhat equivalent of having sold (call option writer) or bought (put option writer) at a price better than current market, only to have the market price move even further in a beneficial direction. If the option writer does not own the underlying shares, the option is written “naked.” Only in this instance can the cash loss to the option writer be unlimited. 15. Option Values and Money. Options are often described as in-the-money, at-the-money, or out-of-the-money. What does that mean and how is it determined? If an option could currently be exercised for a profit it is in-the-money. If the current spot rate is the same as the option’s strike rate, it is at-the-money. If the option is not currently exercisable for a profit it is out-of-the-money.

  • Assignment status: Already Solved By Our Experts
  • (USA, AUS, UK & CA PhD. Writers)
QUALITY: 100% ORIGINAL PAPER –  NO PLAGIARISM – CUSTOM PAPER

testimonials icon
Description In a short essay, first, describe the characteristics of an effective leader. Then, identify someone you believe is an effec...
testimonials icon
Running head: LANGUAGE INTERACTIONS IN PRE-SCHOOL EXPERIENCELanguage Interactions in Pre-school ExperienceStudents NameInstitutional AffiliationDate1...
testimonials icon
for chapter 8.1 i just need answer for questions 5, 19, 39for chapter 8.3 i just need answer for questions 11...
testimonials icon
Question Description I attached the proj...
testimonials icon
NR701 Application of Analytic Methods Week 1 discussion DQ1 Evidence-Based Practice and Research Compare...
testimonials icon
1. Select a relevant clinical practice based problem/topic.2. Describe the current clinical practice based problem/topic and include...
testimonials icon
Write a paper (1,500-1,750 words) describing the approach to care of cancer. In addition, include the following in your paper:D...
testimonials icon
Psychology -is essentially the study of the human mind and behavior. It is both an applied and academic field, meaning that some concepts can be and...
testimonials icon
Tailor​ Johnson, a U.S. maker of fine​ menswear, has a subsidiary in Ethiopia. This​ year, the subsidiary reported and repatriated earnings...
testimonials icon
Bromine has two naturally occurring isotopes (Br-79 and Br-81) and has an atomic mass of 79.904 amu. The mass of Br-81...
testimonials icon
Should the United States have a national healthcare plan? Why, or why not? Discuss the pros and cons of your choice. You must use...

Other samples, services and questions:

Calculate Price

When you use PaperHelp, you save one valuable — TIME

You can spend it for more important things than paper writing.

Approx. price
$65
Order a paper. Study better. Sleep tight. Calculate Price!
Created with Sketch.
Calculate Price
Approx. price
$65