Question
Consider a European call option on 62,500 with an exercise price of $1.50/. You pay an option premium of $0.10/ for the call option today.
Consider a European call option on 62,500 with an exercise price of $1.50/. You pay an option premium of $0.10/ for the call option today.
a. If the $- spot exchange rate is $1.62/ on the contract expiration date, would you exercise the call option (buy at the exercise price at expiration)? What would be the option payoff and profit?
b. If the $- spot exchange rate is $1.45/ on the contract expiration date, would you exercise the call option? What would be the option payoff and profit?
c. At what $- spot exchange rate at expiration would you break-even (profit=0)?
d. Draw a profit profile of buying the call option.
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