question archive An investor is expecting that the euro either will sharply increase or sharply decrease against the Japanese Yen
An investor is expecting that the euro either will sharply increase or sharply decrease against the Japanese Yen
Subject:BusinessPrice: Bought3
An investor is expecting that the euro either will sharply increase or sharply decrease against the Japanese Yen. The investor purchases 2 options 1) a currency put option on the euro with a strike price (exchange rate) of ¥128/€. When the investor purchases the contract, the spot rate of the euro is equivalent to X125/€. the premium is 3/€ 2) a currency call option on the euro with a strike price (exchange rate) of ¥128/€. When the investor purchases the contract, the spot rate of the euro is equivalent to 125/€, the premium is 3/€ a) Assume the euro's spot price at the expiration date market price) is ¥135/€ The investor's profit = 1 \/€ b) Assume the euro's spot price at the expiration date (market price) is \113/€ The investor's profit W/€ c) What is the maximum loss Maximum loss = WIE
