Second Midterm Exam – Interactive Review

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Calculation Questions (5 × 4 = 20 points)

1. Futures – Long
   You enter into a long futures contract to buy 600,000 NOK at a futures price of $0.096 per NOK. At maturity, the spot rate is $0.101.
   Show Answer
   Profit = 600,000 × (0.101 − 0.096) = $3,000 gain
2. Futures – Long
   You agree to buy 1,200,000 NOK in a futures contract at $0.099. When the contract matures, the spot rate is $0.094. What is your payoff?
   Show Answer
   Profit = 1,200,000 × (0.094 − 0.099) = $6,000 loss
3. Call Option – Long
   You buy a call option to purchase 1,000,000 NOK with a strike price of $0.098, paying a premium of $0.006 per NOK. At expiration, the spot rate is $0.105. Do you exercise the option? What is your profit or loss?
   Show Answer
   Profit = max(0.105 − 0.098 − 0.006, −0.006) × 1,000,000 = $1,000 gain
4. Call Option – Long
   You purchase a call option for 750,000 NOK with a strike price of $0.102, paying a premium of $0.006. At expiration, the spot rate is $0.098. Will you exercise the option? What is your net profit or loss?
   Show Answer
   Loss = max(0.098 − 0.102 − 0.006, −0.006) × 750,000 = −0.006 × 750,000 = $4,500 loss
5. Put Option – Long
   You buy a put option for 900,000 NOK with a strike price of $0.110, and pay a premium of $0.006. At maturity, the spot rate is $0.096. Do you exercise the put? What is the net payoff?
   Show Answer
   Profit = max(0.110 − 0.096 − 0.006, −0.006) × 900,000 = $7,200 gain