8 7.8 Vatic Capital. Cachita Haynes works as a currency speculator for Vatic Capital of...
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8 7.8 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 120.00/5. She must choose between the following 90-day options on the Japanese yen: Option Strike Price Premium Put on yen 125/5 $0.00003/yen Call on yen 125/$ $0.00046/yen Assumptions Current spot rate (Japanese yen/USS) in USS/yen Maturity of option (days) Expected ending spot rate in 90 days (yen/5) in US$/yen Values 120.00 $0.00833 90 140.00 $0.00714 Call on yen 125.00 $0.00800 50.00046 Strike price (yen/USS) in USS/yen Premium (USS/yen) Put on yen 125.00 $0.00800 $0.00003 a Should Cachita buy a put on yen or a call on yen? b. What is Cachita's break-even price on the option purchased in part (a)? 0 Buy a put on yen pays premium of $0.0003/yen today 190 Exercise put, delivering the yen and receiving USS Strike price $0.00800 in yen Less premium=-0.00003 Breakeven- $0.00797 c. Using your answer from part (a), what are Cachita's gross profit and net profit (including premium) if the spot rate at the end of 90 days is 140/S
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