Part 1

A speculator believes that Canadian dollars (C$) are going to appreciate against US dollars. He decides to construct bull spreads to profit from his speculation. Two Canadian dollar (C$) put options are available with exercise prices of $0.95 and $1.15. The premiums associated with these options are $0.03 and $0.04 per unit, respectively.

What is the break-even point(s) (i.e., exchange rate(s)) for this bull spread?

A. 1.03/C$

B. 1.05/C$

C. 1.14/C$

D. 1.10/C$

What will be the speculator's potential maximum loss per unit if Canadian dollars depreciate against US dollars?

A. -$0.09

B. -$0.19

C. -$0.07

D. -$0.2

Another speculator believes that Canadian dollars (C$) are going to depreciate against US dollars. He decides to construct bear spreads using the put options available to profit from his speculation. What will be his profit per unit if the spot rate at the option expiration is $1.105

A. $0.040

B. $0.010

C. $0.035

D. $0.030

E. $0.045

Part 2

A trader predicts that there will be great price movements of USD/British Pounds in the near future but does not know which direction the price will move, so he decides to use the "long strangle forex options trading strategy" to make money in the forex market. The information for the call options and put options and put available for him are given below.

Call option premium on British Pounds () = $0.008

Put option premium on British Pounds () = $0.006

Call option strike price 1 = $1.62

Put option strike price 1 = $1.63

One option contract represents 100,000

What is/are the breakeven point(s) (i.e., exchange rate(s)) for this strangle?

A. The lower break-even point is $1.616/, and the higher break-even point is $1.634/

B. The lower break-even point is $1.634/, and the higher break-even point is $1.644/

C. The lower break-even point is $1.606/, and the higher break-even point is $1.644/

D. The lower break-even point is $1.62/, and the higher break-even point is $1.63/

E. The lower break-even point is $1.616/, and the higher break-even point is $1.644/

If the trader uses two call options contracts and two put options contracts to construct the long strangle strategy, what will be the trader's profit if the spot rate on the option expiration date is $1.65?

A. $6,000

B. $1,200

C. $3,200

D. $6,800