7) Yadwiga Novakoma is working in Montreal for HSBC Bank. She expects the Canadi
ID: 2692577 • Letter: 7
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7) Yadwiga Novakoma is working in Montreal for HSBC Bank. She expects the Canadian dollar to do well as compared to the USD because the Canadian commodity markets will pick up due to increased demand from Asia. The current spot rate is CAD 0.6750 per USD. She is uncovered but is sorely tempted to use options contract to speculate. The 3 month rates she faces are: Put on CAD: Strike USD 0.7000 with a premium of USD 0.0003/CAD Call on CAD: Strike USD 0.7000 with a premium of USD 0.0249/CAD a) Should she buy or sell an option? b) Using her decision in (a) calculate her gross and net profit if the ending 3 month spot rate is USD 0.7600/CAD?Explanation / Answer
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