Use the Euro option data below, at that time Euro spot exchange is 1.1173 $/Euro: For the Calls and Puts with strike 111, 112, and 113; determine the 1:

Intrinsic Value, 2: Speculative value and 3: if the option is In-the-Money or Out-of-

the-Money. Use the Ask price for option premium.

Feb 20, 2015	0	111.50	Feb 20, 2015	1.71	0
Feb 20, 2015	0
112.00	Feb 20, 2015	1.94 1.99	1

Option Chain for PHLX U.S. Dollar-Settled Euro Currency

Calls

Chg

Bid

Ask

Vol

Open Int Strike

Puts

Chg

Bid

Ask

Vol

Open Int

4. The following option contracts with six months maturity are available:

Call Premium	Strike	Put Premium
0.0530	1.05	0.0183
0.0264	1.10	0.0412
0.0110	1.15	0.0752

An exporter will receive 50 million in six months. He would like to guarantee his dollar revenue. The importer must pay 100 million in six months and would like to secure his dollar liability. Both would like to hedge using option to keep some upside potential Importer:

1. Which option type should the exporter buy? Assuming no time value of money, describe his dollar revenue un-hedged and with any of the three strike, if in six months the currency exchange is 1.05$/E, 1.10$/E or 1.15$/E. What is the difference or trade-off between the three available strikes?
2. Which option type should the importer buy? Assuming no time value of money, describe his dollar revenue un-hedged and with any of the three strike, if in six months the currency exchange is 1.00$/E, 1.10$/E or 1.20$/E. What is the difference between the three available strikes?