Consider an Option to Buy £10,000 for €12,500 Find the Value Today of Your Replicating Today's Portfolio in Period,if

question 37

Essay

Consider an option to buy £10,000 for €12,500.In the next period,if the pound appreciates against the dollar by 37.5 percent then the euro will appreciate against the dollar by ten percent.On the other hand,the euro could depreciate against the pound by 20 percent.
Big hint: don't round,keep exchange rates out to at least 4 decimal places.

$\begin{array}{lll}&spot Rates&Risk-tree Rates\\S_{0}(\$ / €) & \$ 1.60=€ 1.00&i \$ 3.00 \% \\S_{0}\left(\$ / £)\right. & \$ 2.00=£ 1.00&i €4.00 \% \\S_{0}\left(€ /£)\right. & € 1.25=£ 1.00&i £4.00 \%\end{array}$ Find the value today of your replicating today's portfolio in euro.

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Definitions:

Order Cycle Time

The total time that elapses from the moment a customer places an order until they receive their purchase.

Cycle Time Length

The total time from the beginning to the end of your process, as defined by you and your customer. It measures the time taken to complete a single process cycle effectively.

Activity-Based Costing

A costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each.

Profitability

An indicator of a business's ability to generate earnings compared to its expenses and other relevant costs incurred during a specific period of time.