a) Randy Rudecki purchased a call option on British pounds for $.02 per unit. The strike price was $1.45 and the spot rate at the time the option was exercised was $1.46. Assume there are 31,250 units in a British pound option. What was Randys net profit on this option? Show your work.

b)

Assume you have $1,000,000 to invest

Current spot rate of the pound = $1.30

90 day forward rate of pound = $1.28

3 month deposit rate in US = 3%

3 month deposit rate in Great Britain = 4%

If you use covered interest arbitrage for a 90-day investment, what will be the amount of U.S.dollars you will have after 90 days? Show your work.