Question 1 Chicharito Hernandez is a foreign exchange trader working at Standard Chartered Bank based in England. With the Covid-19 pandemic getting worse in Malaysia and the Malaysian political situation remained unstable for the last 18 months, he expects that the Malaysian ringgit (MYR) will depreciate against the Mexican peso (MXN) over the next three months. Contract specifications of currency options are as follow: Contract Size Call on MYR MYR 250,000 Put on MYR MYR 250,000 Strike MXN4.8460/MYR MXN4.8800/MYR Premium MXNO.0035/MYR MXNO.0065/MYR Required: (a) Explain whether Chicharito Hernandez should long a call option or a put option on MYR today. Explain the possible payoffs if at the end of the three months MYR appreciate or depreciate against MXN. (9 marks) (b) Calculate the payoff in MXN terms for the long position taken above if the future spot rate at the end of the three months turns out to be MXN4.8000/MYR, MXN4.8600/MYR and MXN4.9400/MYR respectively. Indicate whether the payoff is a profit or loss. (9 marks)