question 2

The graph below shows contingency net profits for a buyer of a British pound straddle, in which the exercise price is $1.38 per Pound, the call and put premiums are $0.04 and $0.03 per unit, respectively. Explain why the buyer's net profit per unit is V-shaped, and why his break-even points are at the future exchange rates of $1.31 and $1.45. Net profit per unit $1.31 $1.31 $1.45 $1.38 Future spot rate -$0.07