19 Speculating with currency call options. LSU Corp.

purchased Canadian dollar call options for speculative purposes. If these options are exercised, LSU will immediately sell the Canadian dollars in the spot market. Each option was purchased for a premium of

$0.03 per unit, with an exercise price of $0.80. LSU plans to wait until the expiration date before deciding whether to exercise the options. Of course, LSU will exercise the options at that time only if it is feasible to do so. In the following table, fill in the net profit (or loss) per unit to LSU Corp. based on the listed possible spot rates of the Canadian dollar on the expiration date.

Transcribed Image Text:

Possible spot rate on Canadian dollar on expiration date $0.76 $0.78 $0.80 $0.82 Net profit (loss) per unit to LSU Corporation $0.85 $0.87