Question: John is a Forex trader. He focuses principally on…
John is a Forex trader. He focuses principally on the Singapore dollar/ us dollar (S$/$) cross-rate. The current spot rate is S$1.44/$. After considerable study, he concludes that the exchange rate, in the coming 180 days, will probably be about S$1.50/$. He has the following options on the Singapore dollar to choose from:
|Put on S$||S$1.4700/$||S$0.003/$|
|Call on S$||S$1.4700/$||S$0.004/$|
Discuss whether he should buy a Put on S$ or Call on S$, and what would be his net profit if the spot rate at the end of the 180 days is indeed S$1.50/$.