Question

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​/$. She must choose between the following 90​-day options on the Japanese​ yen:Option Strike Price PremiumPut on Yen 125/$ 0.00003/S$Call on Yen 125/$ 0.00046/S$Should Cachita buy a put on yen or call on yen?

Answer 1

Answer:

Cachita should buy put on yen

Explanation:

Given:

The current spot rate = ¥120.00​/$

in US $/¥ = $\frac{\textup{1}}{\textup{120.00}}$

or

in US $/¥ = 0.0083

Maturity time = 90 days

                                     Put on Yen                  Call on Yen

Strike Price                     125/$                           125/$

Strike Price in $/¥        0.008                            0.008

Premium                      0.00003/$                0.00046/$

Therefore,

Here the strike price for put on Yen and call on Yen are same

but the premium for Put on Yen is less than the premium for the call on Yen

Therefore, Cachita should buy a put on yen to get the profit from the rise of the dollar