1. Compare and contrast forward contracts, futures contracts and options in the foreign exchange market

2. Currency Strangles

   1. The following information is currently available for Canadian dollar (C$) options

   2. Put option exercise price=$.75

   3. Put option premium=$.014 per unit

   4. Call option exercise price=$.76

   5. Call option premium= $.01 per unit

   6. One option contract represents C$50,000

• What is the maximum possible gain for a purchaser of the strangle using these options, assume the exchange rate ranges from $0.5/C$ to $2/C$b?

• What is the maximum possible loss for a writer of the strangle?

• Locate the break-even point (s) of the strangled.

• Please use Excel to graph the profit curve for the strangle buyer and strangle writer.