ANSWER IN BLUE PLEASE SHOW WORK

Assume Hans believes the rate will increase in 3 months.

current spot rate: $0.5851/SFr

strike rate: $0.5850/SFr

Standard Contract Size: SFr62,500

Hans E[S₉₀] rate: $0.6000/SFr

Hans Premium rate: $0.0050/SFr

Actual Spot(90): S₉₀ ?

a) What does Hans want the relationship of the spot rate and strike price at maturity?

Spot ___strike

b) What are the positions on the important dates? (i.e., what does Hans do?)

Position on:

Day 1:

Day 90: If S₉₀= $0.5750/SFr, then Hans

PUT OPTION/ WRITER Profit formula:

Profit* = Premium (Strike price Spot rate)

=

=

In dollar terms:

*Pay attention to whether the option is exercised or not!

c) What if the spot > strike on day 90?

D. Speculation IV: Writer of a put option Assume Hans believes the rate will increase in 3 months. a) What does Hans want the relationship of the spot rate and strike price at matur Spot strike b) What are the positions on the important dates? (i.e., what does Hans do?) Position on: Day 1: Day 90 : If S90=$0.5750/SFr, then Hans PUT OPTION/ WRITER Profit formula: Profit=Premium(StrikepriceSpotrate)==1 In dollar terms: *Pay attention to whether the option is exercised or not! c) What if the spot > strike on day 90