You often take speculative positions in options on euros. One month ago, the spot rate of the euro was $1.49, and the one-month forward rate was $1.50. At that time, you sold call options on euros at the money. The premium on that option was $0.02. Today is when the option will be exercised, if it is feasible to do so. Determine your profit or loss per unit on your option position if the spot rate of the euro is $1.55 today. Repeat part (a), but assume that the spot rate of the euro today is $1.48.

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 5ST
Textbook Problem

You often take speculative positions in options on euros. One month ago, the spot rate of the euro was $1.49, and the one-month forward rate was $1.50. At that time, you sold call options on euros at the money. The premium on that option was $0.02. Today is when the option will be exercised, if it is feasible to do so.

  1. Determine your profit or loss per unit on your option position if the spot rate of the euro is $1.55 today.
  2. Repeat part (a), but assume that the spot rate of the euro today is $1.48.

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