1a. Consider you bought a three-month American call option on 10,000 with a strike price of $1.20/ . The option premium is $0.005/. The current spot exchange rate is $1.25/ . What would be your payoff as a buyer?

a. $450

b. $500

c. $550

d. negative profit, so exercise would not occur

1b. Consider you bought a three-month American put option on 10,000 with a strike price of $1.40 /. The option premium is $0.0045/. The current spot exchange rate is $1.30/. What would be your payoff as a buyer?

a. $1,000

b. $955

c. $1,045

d. negative profit, so exercise would not occur