Sandy trades currencies for a Middle Eastern sovereign wealth fund, focusing on the U.S. dollar/Singapore dollar ($/S$) cross-rate. The current spot rate is $0.6000/S$. She has S$1,000,000 to invest (notional principal).

Based on her analysis, she believes the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about $0.7000/S$. She has the following options on the Singapore dollar to choose from:

Put on Singapore dollar: strike price = $0.6500/S$ premium = $0.00003/S$

Call on Singapore dollar: strike price = $0.6500/S$ premium = $0.00046/S$

1. Should Sandy buy a put or call on Singapore dollars? Why?

2. What is Sandy's break-even price on the option purchased in question 1? Show how you arrived at your answer.

3. If the spot rate at the end of 90-days is indeed $0.7000/S$, what is Sandy's profit or loss (including premium)? Show how you arrived at your answer.

4. If instead the spot rate at the end of 90-days ends up being $0.5000/S$, what is Sandy's profit or loss? Show how you arrived at your answer.