Cachita Haynes at Vatic Capital. Cachita Haynes works as a currency speculator f
ID: 2760466 • Letter: C
Question
Cachita Haynes at Vatic Capital. Cachita Haynes works as a currency speculator for Vatic Capital of Los Angeles. Her latest speculative position is to profit from her expectation that the U.S. dollar will rise significantly against the Japanese yen. The current spot rate is 119.00/$. She must choose between the following 90-day options on the Japanese yen: Should Cachita buy a put on yen or a call on yen? b. What is Cachita's breakeven price on the option purchased in part (a)? Using your answer from part (a), what is Cachita's gross profit and net profit (including premium) if the spot rate at the end of 90 days is 140.00/$?Explanation / Answer
Solution :
Value calculated Values Current spot rate (Japanese yen/US$) 119 in US$/yen $0.0084 Maturity of option (days) 90 Expected ending spot rate in 90 days (yen/$) 140 in US$/yen $0.00714 Call on yen Put on yen Strike price (yen/US$) 126 126 in US$/yen $0.00793 $0.00793 Premium (US$/yen) $0.00046 $0.00003