1. An American investor believes that the dollar will depreciate and buys one call option on the euro at an exercise price of 110 cents per euro. The option premium is 1 cent per euro, or $625 per contract of 62, 500 euros (Philadelphia): a. For what range of exchange rates should the investor exercise the call option at expiration? b. For what range of exchange rates will the investor realize a net profit, taking the original cost into account? c. If the investor had purchased a put with the same exercise price and premium, instead of a call, how would you answer the previous two questions?

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02-07-2024
Mathematics

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1. An American investor believes that the dollar will depreciate and buys one call option on the euro at an exercise price of 110 cents per euro. The option premium is 1 cent per euro, or $625 per contract of 62, 500 euros (Philadelphia): a. For what range of exchange rates should the investor exercise the call option at expiration? b. For what range of exchange rates will the investor realize a net profit, taking the original cost into account? c. If the investor had purchased a put with the same exercise price and premium, instead of a call, how would you answer the previous two questions?

Sagot :

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