The U.S. 3-month interest rate (unannualized) is 2 percent. The Canadian 3-month interest rate (unannualized) is 5 percent. Interest rate parity exists. The expected inflation over this period is 5 percent in the United States and 2 percent in Canada. A PUT OPTION with a 3-month expiration date on Canadian dollars is available for a premium of $.02 and a strike price of $.64. The spot rate of the Canadian dollar is $.65. Assume that you believe in purchasing power parity. All answers need to accompany the contingency graph.

a. Determine the dollar amount of your profit or loss from buying a PUT OPTION contract specifying C$100,000.

b. Determine the dollar amount of your profit or loss from selling a futures contract specifying C$100,000