#5

Consider a 3-month European call option written on 62,500 with a strike price of S1.40/, and an option premium of 5. Graph the cash flow schedule from the perspective of the buyer & the seller of the option. Be sure to clearly label profits, losses, the break-even point, and at what point the option is exercised. b. In three months, the spot a. exchange rate is $1.30, what is the realized profit from this option for the buyer and 6. Suppose you are a speculator and you carn buy or sell a 12-month put option on euros with a strike price of 1.07/, and a put premium of $0.005/. You expect the euro to appreciate 7.25% relative to the U.S. dollar over the next twelve months. The current spot rate is S(S/)-1.085. Euro options are for 10,000 euros. i. Graph the cash flow schedule from the perspective of the buyer and the seller. ii. Given your expectations, should you buy or sell the option? What is your expected speculative profit? iii. Suppose your expectations are incorrect and the euro depreciates 3.25% relative to the USD. What is your speculative