Part 1 – 8 marks
In class, we covered the elements of basic options pricing. Read the section titled “European
option-pricing formula” on p191 and 192 of the textbook, which describes option pricing in
more detail.
Now go to https://www.nasdaq.com/markets/currency-options.aspx. Choose a currency by
selecting one of the flag icons. This will give you a list of options on that currency. Choose an
expiration date and select one of the call options. Ensure your option has a number greater than
zero in the “Open Int” column. The snapshot below is an example.
Note: options are in terms of U.S. dollars per unit of the underlying currency. The premium is
paid/received in U.S. dollars.
a) In the next step, you will be calculating the call price based on what you have read on
p191. Please provide a snapshot for the option you are pricing, including the currency
and expiration month. You will need quotes for St, Ft, r$ and ri. Find quotes for each of
these inputs, describe where you found them and why you chose the quote you used. (4
b) Based on formulas 7.12 to 7.14 on p191, calculate the call price for your selected option
(in USD). Make sure you show all your calculations, including all formulas and how
you calculate d1 and d2. Note: the option volatility (s) can be found on the Nasdaq
website where you found your option quote by clicking on your chosen option, and is
titled “Impvol”. (4 marks)
Part 2 –12 marks
In 2015, the United Kingdom introduced the Modern Slavery Act. Part 6 of this legislation
requires commercial organizations to produce a statement on the actions taken to ensure their
operations are not exposed to human trafficking and slavery. This legislation applies to any
organization with annual turnover of £36 million and that has any part of its business in the
UK. In 2018, Australia also passed a Modern Slavery Act which will come into effect this year.
The Australian legislation took many of the elements of the UK legislation. In this section you
will be doing some background research on the UK legislation.
a) What is modern slavery and how prevalent is it in the world today? (2 marks) Word
limit: 250 words
b) Choose a company that is a constituent of the FT100. Is this company likely to have a
high or low risk of slavery in its supply chain? Justify your answer. Make sure you
include the name of your company and a short description of its business in your
answer. (6 marks) Word limit: 500 words
In answering the above two questions, you must reference at least two sources per answer.
Your references could include, for example, reports published by government or nongovernment
organizations, or reputable newspaper articles. These references cannot be
documents provided by the company and Wikipedia and blogs are not acceptable sources.
You must provide a reference list of ONLY the sources you refer to in answering these
questions. References must be in the Harvard referencing style. You can find details of how to
reference using the Harvard referencing style here:
2 marks will be allocated for correct referencing.
2 marks will be allocated for correct grammar and clear and logical writing.