Bambang Pamungkas at CCB Bank. Bambang Pamungkas works for CCB Bank Currency Trading Desk in Montreal, Canada. Bambang is something of a contrarian – as opposed to most of the forecasts, he believes the Canadian dollar (C$) will appreciate versus the British pound over the coming 90 days. The current spot rate is £0.5931/C$. Bambang may choose between the following options on the Canadian dollar.

a. Should Bambang buy a put on Canadian dollars or a call on Canadian dollars?

b. What is Bambang’s break-even price on the option purchased in part (a)?

c. Using your answer from part (a), what are Bambang’s gross profit and net profit (including premium)
if the spot rate at the end of 90 days is indeed £0.7300?

d. Using your answer from part (a), what are Bambang’s gross profit and net profit (including premium)
if the spot rate at the end of 90 days is £0.7850?

Transcribed Image Text:

Option Strike Price Premium Put on C$ 0.6500 0.0035 Call on C$ 0.6500 0.0055