1. You have $123,000 that you want to use to speculate in yen options. The spot rate is 113.84/$. You think that, at this rate, the yen is underpriced and, therefore, you expect it to substantially appreciate against the dollar in the coming few weeks. You decide to use your $123,000 to act on your expectations. The yen three-week calls and puts with an exercise price of $0.00890/ are selling for (i.e. premiums are) $0.00024/ and $0.00048/yen respectively. (Each yen contract calls for the exchange of 6.25 million yen)
   1. Would you buy call or put contracts? Explain your answer in your own words.
   2. How many contracts can you buy with the money you have?
   3. Assume that you buy 65 call contracts. If at the end of three weeks the spot rate is 106.40/$, calculate your total payoffs and profit/loss from your investment.