QUESTION 9
TOPIC: DERIVATIVES
TOTAL POINT VALUE OF THIS QUESTION SET IS 12 POINTS
Stefan Ozturk, CFA, is the president of Core Vision Investments (CVI), a global advisory firm. CVI is based in New York City, with offices in London, Singapore, Hong Kong, and Mumbai. With investments in multiple jurisdictions and global expansion anticipated, Ozturk hires Advik Khatri, a derivatives specialist with specific experience in foreign exchange products, swaps, options and interest rate futures. Ozturk requests Khatri to identify suitable derivatives strategies for two clients, Papadopoulos and Gravity Ventures.
Papadopoulos, a pharmaceutical manufacturing start-up, has recently discovered a new opportunity for expansion and has raised $1 billion through Series E funding. Many global institutional investors participated in funding and, in three months, Papadopoulos will receive CAD 31 million (Canadian dollars) and BRL 51.5 million (Brazilian reals). Carter Moore, the treasury manager at Papadopoulos, expects short-term volatility in the BRL/USD currency pair and prepares three possible strategies to hedge the BRL position.
Strategy 1: A short position in a BRL/USD forward contract.
Strategy 2: A long position in an at-the-money (ATM) call option in BRL/USD.
Strategy 3: A short position in a BRL/USD foreign exchange variance swap.
Moore is meeting with Khatri to discuss a suitable hedge for their CAD position. Because of increasing trade activity, Moore expects that the USD might appreciate against CAD in the next three months and asks Khatri to find a profit-making trade. Khatri presents call and put pricing data in Exhibit 1 and recommends implementing a risk reversal strategy.
The current CAD/USD spot rate is 1.25. Each option contract equals 100,000 CAD/USD.
Gravity Ventures has an existing cash position of USD 1 million. Gustav Dimitrov, a portfolio manager at Gravity Ventures, anticipates that Arc Media (ARKM) shares will increase from their current price of USD 85 to USD 91 over the next quarter as a result of expanded viewership and subscriptions. Dimitrov asks Khatri to suggest a suitable options strategy to profit from the anticipated price increase of ARKM shares. After running a quantitative model, Khatri identifies that the implied volatility has been constant for the last quarter and expects the same for the next quarter. Khatri presents the three-month call options currently available in Exhibit 2 and suggests implementing a long call strategy using the total cash position. Each option contract comprises 100 shares.
At the end of three months, Dimitrov reviews the option position to prepare the overall quarterly profit and loss statement and finds that ARKM shares closed at USD 91.
38. The cost of implementing each out-of-the-money (OTM) risk reversal strategy is closest to:
A. USD 1,250.
B. USD 2,500.
C. USD 3,750.
39. Which strategy will yield the greatest profit?
A. Long call 1
B. Long call 2
C. Long call 3
请问：
1、第38题，答案中要乘以100,000，这个100,000是怎么判断出来的？
2、第39题要怎么计算，烦请老师再详细讲解一下。
谢谢！
