Speculating with Currency Options The spot rate of the New Zealand dollar is $.77. A call option on New Zealand dollars with a 1-year expiration date has an exercise price of $.78 and a premium of $.04.

A put option on New Zealand dollars at the money with a 1-year expiration date has a premium of $.03.

You expect that the New Zealand dollar’s spot rate will decline over time and will be $.71 in 1 year.

a. Today, Dawn purchased call options on New Zealand dollars with a 1-year expiration date. Estimate the profit or loss per unit at the end of 1 year. [Assume that the options would be exercised on the expiration date or not at all.]

b. Today, Mark sold put options on New Zealand dollars at the money with a 1-year expiration date.

Estimate the profit or loss per unit for Mark at the end of 1 year. [Assume that the options would be exercised on the expiration date or not at all.]