Question
Speculating with Currency Call Options. Bama Corp. has sold British pound call options for speculative purposes. The option premium was $.06 per unit, and the
Speculating with Currency Call Options. Bama Corp. has sold British pound call options for speculative purposes. The option premium was $.06 per unit, and the exercise price was $1.58. Bama will purchase the pounds on the day the options are exercised (if the options are exercised) in order to fulfill its obligation. In the following table, fill in the net profit (or loss) to Bama Corp. if the listed spot rate exists at the time the purchaser of the call options considers exercising them. Draw the associated contingency graph.
Spot Price | Value of the Call Option |
$1.45 |
|
$1.50 |
|
$1.55 |
|
$1.58 |
|
$1.60 |
|
$1.65 |
|
$1.70 |
|
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