You are the manager of a trading company that trades mainly with the companies in Australia. The current exchange rate is HKD4.8423 per AUD (Australian dollar). The information of call option on AUD is shown in the table below.

Type of option	Time to maturity	Exercise Price	Premium per AUD
European Call	3 months	HKD4.9523	HKD0.10

Your company has just bought the call options for AUD500,000.

1. Calculate your companys potential maximum loss (in dollar terms) in these options. Explain. (4 marks)

2. Calculate the breakeven exchange rate of HKD per AUD for your company in these options. (6 marks)

3. Are the call options in-the-money, out-of-the-money or at-the-money if the exchange rate is HKD4.8612 per AUD? Explain. (3 marks)

4. Calculate your companys profit/loss in dollar terms (HKD) in these options when the exchange rate is HKD4.9861 per AUD. (3 marks)

5. If these options were American call options, should the option premium be higher or lower than HKD0.10 per AUD. Explain. (4 marks)