A put option on Australian dollars with a strike price of $0.80 is purchased by a speculator for a premium of $0.02. If the Australian dollar’s spot rate is $0.74 on the expiration date, should the speculator exercise the option on this date or let the option expire? What is the net profit per unit to the speculator? What is the net profit per unit to the seller of this put option?

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 5, Problem 2ST
Textbook Problem

A put option on Australian dollars with a strike price of $0.80 is purchased by a speculator for a premium of $0.02. If the Australian dollar’s spot rate is $0.74 on the expiration date, should the speculator exercise the option on this date or let the option expire? What is the net profit per unit to the speculator? What is the net profit per unit to the seller of this put option?

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