(a) Hedgers and speculators are needed in order for a derivatives market to function most efficiently. Differentiate between the two.

(b) Consider a put option contract with the size of 300,000, the November put with a strike price of $1.1525 are now quoted at $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 spot rate is $1.2320/? What is the gain in this case?

(c) Consider a call option contract with the size of 180,000, the November call with a strike price of $1.2160 are now quoted at $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 $1.2400/? What is the gain in this case?