Calandra Panagakos at CIBC. Calandra Panagakos works for CIBC Currency Funds in
ID: 2760143 • Letter: C
Question
Calandra Panagakos at CIBC. Calandra Panagakos works for CIBC Currency Funds in Toronto. Calandra is something of a contrarian-as opposed to most of the forecasts, she believes the Canadian dollar (C$) will appreciate versus the U.S. dollar over the coming 90 days. The current spot rate is $0.6749/C$. Calandra may choose between the following options on the Canadian dollar. Should Calandra buy a put on Canadian dollars or a call on Canadian dollars? What is Calandra's breakeven price on the option purchased in part (a)? Using your answer from part (a), what is Calandra's gross profit and net profit (including premium) if the spot rate at the end of 90 days is indeed $0.7604/C$? Using your answer from part (a), what is Calandra's gross profit and net profit (including premium) if the spot rate at the end of 90 days is $0.8253/C$?Explanation / Answer
a. Since calandra panagakos expects that canadian dollar will appreciate versus the U.S. dollar over the coming 90 days she should buy a call option.
b. Breakeven price in case calandra panagakos buys call option will be = Option premium + excercise price
= $0.00046 + 0.7003
= $0.70076
c. Statement showing calculation of gross margin
d. Statement showing calculation of gross margin
Market price $0.7604 Less: Price to be paid on excercise of call option 0.7003 Less; option premium 0.00046 Gross margin $0.05964