(a) Define currency options contract. What are put and call options?

(b) You bought a Dec. 21 call option on British pound with a strike price (K) of $1.2550/ in June 21 and paid a premium of $0.025/. The current spot exchange (S) rate for British pound is $1.2450/. Contract size = 62,500

(i) What are the intrinsic and the time values of this option?

(ii) (a) What is the profit/loss if the option is exercised at expiration if the spot rate settles at $1.2700/? (b) if the spot rate settles at $1.2400? The U.S. interest rate is 2%