Given:

Spot: $1.7800/

6-month forward: $1.8300/

Your 6-month expected spot: $1.8500/

You decide to speculate on your expectation in the Philadelphia options market. The contract size for sterling is 31,250, and you can afford to speculate on only one contract. Six-month put options at a strike price of $1.78 sell for a premium of one cent per pound. Six-month call options at a strike price of $1.78 sell for a premium of four cents per pound.

a) What are the breakeven future spot rates for the put and call options?

b) What should be your speculative strategy in the options market? What is your expected profit?