Question
Q 14: Carl is an option writer. In anticipation of a depreciation of the British pound from its current level of $1.50 (i.e., USD 1.50
Q 14:
Carl is an option writer. In anticipation of a depreciation of the British pound from its current level of $1.50 (i.e., USD 1.50 = GBP 1.00) to $1.45, he has written a call option with an exercise price of $1.51 and a premium of $.02 (i.e., USD 0.02 per GBP underlying). If the spot rate at the option's maturity turns out to be $1.54 (i.e., USD 1.54 = GBP 1.00), what is Carl's profit or loss in USD per GBP (assuming the buyer of the option acts rationally)? The answer should be negative if it is a loss. A. $0.01. B. -$0.01. C. -$0.04. D. $0.04. E. -$0.03. F. $0.03. G. -$0.02. H. Only Oliver the Finance Pug knows.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started