Business

the term bank has been applied broadly over the years to include a diverse set of financial-service institutions,whih offer different financial-service packages.identify as many of the different kinds of banks as you can.how do the banks you have identified compare to the largest banking group of all-the commercial banks? why do you think so many different finanial firms have been called banks how might this confusion in terminology affect financial-service customers?

EXPERT ANSWER

what is the difference between a) entering into a long futures contract when the price is 50 and b)taking a long position in a call option with a strike price of 50

what is the difference between a) entering into a long futures contract when the price is 50 and b)taking a long position in a call option with a strike price of 50 EXPERT ANSWER In case of a futures contract when the price is below 50 the long position would incur a loss of 50 …

what is the difference between a) entering into a long futures contract when the price is 50 and b)taking a long position in a call option with a strike price of 50 Read More »

An investor enters into a short forward contract to sell 100,000 British pounds for US dollars at an exchange rate of 1.4000 US dollars per pound. How much does the investor gain or lose if the exchange rate at the end of the contract is

An investor enters into a short forward contract to sell 100,000 British pounds for US dollars at an exchange rate of 1.4000 US dollars per pound. How much does the investor gain or lose if the exchange rate at the end of the contract is (a) 1.3900 and (b) 1.4200? (c)Draw the investor EXPERT ANSWER …

An investor enters into a short forward contract to sell 100,000 British pounds for US dollars at an exchange rate of 1.4000 US dollars per pound. How much does the investor gain or lose if the exchange rate at the end of the contract is Read More »

#1. What is the difference between a long forward position and a short forward position? #2. Explain carefully the difference between hedging, speculation, and arbitrage. #3. Explain carefully the difference between selling a call option and buying a put option.

EXPERT ANSWER Answers- # 1) In the long forward position an investor or the party agrees to buy the underlying asset at a specified price at a specified date whereas in the short position the investor or party agrees to sell the underlying asset at an agreed price at a specified date. # 2) Hedging …

#1. What is the difference between a long forward position and a short forward position? #2. Explain carefully the difference between hedging, speculation, and arbitrage. #3. Explain carefully the difference between selling a call option and buying a put option. Read More »

1.5. Suppose that you write a put contract with a strike price of $40 and an expiration date in three months. The current stock price is $41 and one put option contract is on 100 shares. What have you committed yourself to? How much could you gain or lose? 1.6. You would like to speculate on a rise in the price of a certain stock. The current stock price is $29 and a three-month call with a strike price of $30 costs $2.90. You have $5,800 to invest. Identify two alternative strategies. Briefly outline the advantages and disadvantages of each.

EXPERT ANSWER If you write a put option you are committed to buying the shares at the strike price if the stock price drops below the strike price at expiry. The maximum gain a put option writer could gain is the amount of premium collected. This happens if the stock price ends above the strike …

1.5. Suppose that you write a put contract with a strike price of $40 and an expiration date in three months. The current stock price is $41 and one put option contract is on 100 shares. What have you committed yourself to? How much could you gain or lose? 1.6. You would like to speculate on a rise in the price of a certain stock. The current stock price is $29 and a three-month call with a strike price of $30 costs $2.90. You have $5,800 to invest. Identify two alternative strategies. Briefly outline the advantages and disadvantages of each. Read More »

A trader enters into a short cotton futures contract when the futures price is 50 cents per pound. The contract is for the delivery of 50,000 pounds. How much does the trader gain or lose if the cotton price at the end of the contract is (a) 48.20 cents per pound and (b) 51.30 cents per pound?

A trader enters into a short cotton futures contract when the futures price is 50 cents per pound. The contract is for the delivery of 50,000 pounds. How much does the trader gain or lose if the cotton price at the end of the contract is (a) 48.20 cents per pound and (b) 51.30 cents …

A trader enters into a short cotton futures contract when the futures price is 50 cents per pound. The contract is for the delivery of 50,000 pounds. How much does the trader gain or lose if the cotton price at the end of the contract is (a) 48.20 cents per pound and (b) 51.30 cents per pound? Read More »

2 (i) What is the difference between entering into a long forward contract when the forward price is $50 and taking a long position in a call option with a strike price of $50? (ii) Consider two European call options expiring tomorrow on the same underly- ing asset, one with strike price equal to $40 and one with strike price equal to $60. If today’s close price of the underlying asset is $42 which of the two option has higher price and why? (iii) Suppose that you write a put contract with a strike price of $40 and an ex- piration date in 3 months. The current stock price is $41 and the contract is on 100 shares. What have you committed yourself to? How much could you gain or lose? (iv) What is the difference between selling a call option and buying a put option? (v) Consider a geometric Brownian motion with drift u and volatility o: dS = uS dt+oSdW. What is the process followed by the variable s?? Calculate the expected return, the variance and the expected value of S.

EXPERT ANSWER i) Entering into a long forward contract is equivalent to committing today to purchase the asset at $50 at the expiry no matter what the price of the asset is at the expiry.. So, in this contract there is a binding obligation to purchase the asset at $50 Whereas , purchasing one call …

2 (i) What is the difference between entering into a long forward contract when the forward price is $50 and taking a long position in a call option with a strike price of $50? (ii) Consider two European call options expiring tomorrow on the same underly- ing asset, one with strike price equal to $40 and one with strike price equal to $60. If today’s close price of the underlying asset is $42 which of the two option has higher price and why? (iii) Suppose that you write a put contract with a strike price of $40 and an ex- piration date in 3 months. The current stock price is $41 and the contract is on 100 shares. What have you committed yourself to? How much could you gain or lose? (iv) What is the difference between selling a call option and buying a put option? (v) Consider a geometric Brownian motion with drift u and volatility o: dS = uS dt+oSdW. What is the process followed by the variable s?? Calculate the expected return, the variance and the expected value of S. Read More »

what is the difference between a) entering into a long futures contract when the price is 50 and b)taking a long position in a call option with a strike price of 50

what is the difference between a) entering into a long futures contract when the price is 50 and b)taking a long position in a call option with a strike price of 50 EXPERT ANSWER In case of a futures contract when the price is below 50 the long position would incur a loss of 50 …

what is the difference between a) entering into a long futures contract when the price is 50 and b)taking a long position in a call option with a strike price of 50 Read More »

In Japan, 90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return. In the United States, 90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%. All securities are of equal risk, and Japanese securities are denominated in terms of the Japanese yen. Assuming that interest rate parity holds in all markets, which of the following statements is most CORRECT?

In Japan, 90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return. In the United States, 90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%. All securities are of equal risk, and Japanese securities are denominated in terms of the Japanese yen. Assuming …

In Japan, 90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return. In the United States, 90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%. All securities are of equal risk, and Japanese securities are denominated in terms of the Japanese yen. Assuming that interest rate parity holds in all markets, which of the following statements is most CORRECT? Read More »