Suppose you, as a speculator, expect the pound to appreciate in June above $1.47 per pound.

a. Would you buy a June call option with a strike price of $1.45 per pound at a premium of 1.86 cents per pound? Why?

b. If the spot rate on expiration date is $1.47, do you exercise the option? Why? How much is the profit/loss?

c. If the spot rate on expiration date is $1.43, do you exercise the option? Why? How much is the profit/loss?

d. What is the break-even spot rate that gives you zero profit? Show graph.