The spot rate of the New Zealand dollar is $.77. A call option on New Zealand dollars with a one-year expiration date has an exercise price of $.78 and a premium of $.04. A put option on New Zealand dollars at the money with a one-year expiration date has a premium of $.03. You expect that the New Zealand dollar's spot rate will decline over time and will be $.71 in one year.
a. Today, Dawn purchased call options on New Zealand dollars with a one-year expiration date. Estimate the profit or loss per unit at the end of one year. [Assume that the options would be exercised on the expiration date or not at all.]
b. Today, Mark sold put options on New Zealand dollars at the money with a one-year expiration date. Estimate the profit or loss per unit for Mark at the end of one year. [Assume that the options would be exercised on the expiration date or not at all.]