(a) Consider a put option contract with the size of EUR300,000. The November put with a strike price of EUR/USD = 1.1525 are now quoted at premium of EUR/USD = 0.0275.

i. What is the right of contract buyer in the above option contract?

ii. Calculate the premium for the above put option? What happen to this premium?

iii. Will the buyer of the put option contract exercise the option if the market spot rate

is EUR/USD = 1.2320?

(b) Consider a call option contract with the size of EUR180,000, the November call with a strike price of EUR/USD = 1.2160 are now quoted at premium of EUR/USD = 0.02815.

i. What is the obligation of the contract writer in the above call option?

ii. Will the buyer of the call option contract exercise the option if the spot rate is

EUR/USD = 1.2400? What is the gain in this case?