Sallie Schnudel. Sallie Schnudel trades currencies for Keystone Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar/Singapore dollar ($/S$) cross-rate. The current spot rate is $0.6000/S$. After considerable study, she has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about $0.7000/S$. She has the following options on the Singapore dollar to choose from:
a. Should Sallie buy a put on Singapore dollars or a call on Singapore dollars?
b. What is Sallie’s break-even price on the option purchased in part (a)?
c. Using your answer from part (a), what is Sallie’s gross profit and net profit (including premium) if the spot rate at the end of 90 days is indeed $0.7000/S$?
d. Using your answer from part (a), what is Sallie’s gross profit and net profit (including premium) if the spot rate at the end of 90 days is $0.8000/S$?
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