A speculator has purchased United States dollar put options, with an exercise price of A$1.30 and a premium of A$0.05 per unit. (a) Calculate the break-even price. (b) Calculate the profit or loss of the option for the speculator if the spot rate at the time the speculator considers exercising the options is : (1) A$1.20 (2) A$1.28 (3) A$1.34 c) What is the maximum profit and maximum loss for the speculator?

A speculator has purchased United States dollar put options, with an exercise price of A$1.30 and a premium of A$0.05 per unit. (a) Calculate the break-even price. (b) Calculate the profit or loss of the option for the speculator if the spot rate at the time the speculator considers exercising the options is : (1) A$1.20 (2) A$1.28 (3) A$1.34 c) What is the maximum profit and maximum loss for the speculator?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 3BIC

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A speculator has purchased United States dollar put options, with an exercise price of A$1.30
and a premium of A$0.05 per unit. (a) Calculate the break-even price.
(b) Calculate the profit or loss of the option for the speculator if the spot rate at the time the
speculator considers exercising the options is : (1) A$1.20 (2) A$1.28 (3) A$1.34
c) What is the maximum profit and maximum loss for the speculator?
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An investor has purchased United States dollar call options, with an exercise price of A$1.15 anda premium of A$0.03 per unit.(a) Calculate the break-even price. (b) Calculate the profit or loss of the option for the investor if the spot rate at the time the investor considers exercising the options is : (1) A$1.10 (2) A$1.17 (3) A$1.23.(c) What is the maximum loss for the investor?(d) Explain why the investor could have an unlimited profit if the options are exercised.(e) Explain in general the similarities of and differences between a currency call option and a currency put option.
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