1a) What is the maximum profit and loss of writing (or selling) a call option on 62,500 with a strike price of $1.20 = 1.00 and an option premium of $3,125? Potential maximum profit is _____, potential maximum loss is ____.

$75,000, (75,000)

$59,375, (59,375)

$3,125, (59,375)

$3,125, (infinity)

1b) Suppose the spot ask exchange rate, S ^a($|), is $1.52 = 1.00 and the spot bid exchange rate, S ^b($|), is $1.50 = 1.00. If you were to buy $100,000 worth of British pounds and then sell them five minutes later, how much of your $100,000 would be "eaten" by the bid-ask spread?

$2,000

$1,333

$1316

-$2,000