Ouestion $1$

Use the following information to answer this question:

The current spot exchange rate is $$1\mathrm{.}25=1\mathrm{.}00$ and the three$-$month forward rate is

$$1\mathrm{.}30=1\mathrm{.}00.$ Consider a three$-$month call option on $62,500$ with a strike price of

$$1\mathrm{.}20=1\mathrm{.}00.$ The option premium is $$5000.$

a$)$ If you buy this call option, at what exchange rate will you break even?

b$)$ If the $\frac{\text{\$}}{}$ exchange rate is $$1\mathrm{.}30$ at the end of three months, what is the net profit

of an investor who bought one call?

c$)$ If the $\frac{\text{\$}}{}$ exchange rate is $$1\mathrm{.}30$ at the end of three months, what is the net profit

of an investor who sold two calls?