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Question 2 (20 Points) Maggie Hawthornrit a currency specnlato: She has noticed recently that the enthus appreciated substantially against the US dollar. The current exchange
Question 2 (20 Points) Maggie Hawthornrit a currency specnlato: She has noticed recently that the enthus appreciated substantially against the US dollar. The current exchange rate of the euro i 51.15. After reading a vatiety of articles on the subject, she beheves that the ento will continue to fluctuate substantially in the months to come. Although most forecasters believe that the eats will depreciate against the dollar in the near future, Maggie thinks that there is also a good possibility of further appreciation. Currently, a call option on euros is available with an exercise price of $1.17 and a premium of $.04. A euro put option with an exercise price of $1.17 and a premium of $.03 is also available. a. Graph the profit schedule of the call and put options in two separate graphs. Make sure to include all relevant information (strike, premium, ete) in your drawing (6 points) b. Maggie decides to uses a long straddle to speculate on the euro's value (she buys both the call and the put). At option expiration, the value of the euro is $1.30. What is Maggie's total profit or loss from a long straddle position? (7 points) c. Maggie decides to uses a long straddle to speculate on the euro's value (she buys both the call and the put). At option expiration, the value of the euro is $1.05. What is Maggie's total profit or loss from a long straddle position? (7 points)
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