5. Madera Capital. Katya Berezovsky is a currency speculator for Madera Capital of Los Angeles. Her latest speculative position is to profit from her expectation that the U.S. dollar will rise significantly against the Japanese yen. The current spot rate is 120.00/$. She must choose between the following 90-day options on the Japanese yen:

a. Should Katya buy a put on yen or a call on yen?

b. Using your answer to part

a, what is Katya's break-even price?

c. Using your answer to part

a, what is Katya's gross profit and net profit (including the premium) if the spot rate at the end of the 90 days is 140/$?

Transcribed Image Text:

Option Put on yen Strike Price Premium 125/$ $0.00003/ Call on yen 125/$ $0.00046/