s, the arbitrageur trades simultaneously at different markets to gain riskless instant profitsРРРРHedger ExampleРIn 90 days, A pays B £1000,000 ?To avoid risk, A has 2 plans?Purchase a forward contract to buy £1000,000 with $1,650,000 90 days later ?Purchase a call option to buy £1000,000 with $1,600,000 90 days later. A pays a premium of $64,000 (4%)Рcurrent rate?($/ £)Р90-day later?Rate ($/ £)Рno hedging?$Рforward cont.?hedging $Рcall option?hedging $Р1.60Рup 1.70?down 1.55Р1,700,000?1,550,000Р1,650,000?1,650,000Р1,664,000?1,614,000РРРРSpeculator ExampleРStock A is $66.6 on April 30, may grow?A speculator has 2 plans?buys 10,000 shares with $666,000 on April 30?pays a premium of $39,000 USD to purchase a call option to buy 10,000 shares at the strike price $68.0 per share on August 22
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