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Category > Business & Finance Posted 17 Jun 2017 My Price 8.00

Time-Value Deterioration: Bodo's Dilemma Bodo Schlegelamich i

Time-Value Deterioration: Bodo's Dilemma Bodo Schlegelamich is a currency speculator for a private banking house in Boston. His base currency is therefore the US. dollar. He is currently con­vinced that the euro is overvalued and wishes to take a speculative position to profit from his expectations. He will invest $1 million in his position (spent entirely on option premiums). The current spot rate is $1.0650/E. Thecurrent premiums on call and put options (U.S. cents/E) with a strike price of

$1.1200/E are the (Mowing:

    

Strike: $1.121E (U.S. cents/E)

90 days

180 days

Call options on euro: premiums

0.401

1.177

Put options on curo: premiums

6.186

6.143

a. What should Bodo do-buy a call, sell a call, buy a put, or sell a put on the euro?

b. What would be his profits or losses if he bought a 90-day call at $1.02/K, and the actual spot exchange rate in 90 days turned out to be $1.08/E?

 

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Status NEW Posted 17 Jun 2017 01:06 PM My Price 8.00

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