Question:
1. Do you think that a web-enabled Foreign Exchange Market would revolutionise the forex trading practices in the future? Elucidate with examples.

Q.2 Consider a stock worth $25 that can go up or downby15 percent per period. The risk-free rate is 10 percent. Use one binomial period. (05)
a. Determine the two possible stock prices for the next period.
b. Determine the intrinsic values at expiration of Europeancalloptionwithanexercisepriceof$25.
c. Find the value of the option today.
d. Construct a hedge by combining a position in stock with a position in the call. Show that the return on the hedge is the risk-free rate regardless of the outcome, assuming that the call sells for the value you obtained in part c.
e. Determine the rate of return from a riskless hedge if the call is selling for $3.50 when the hedge is initiated.