1. A corporate treasurer is designing a hedging program involving foreign currency options. What are the pros and cons of using (a) NASDAQ OMX and (b) the over-the-counter market for trading?
2. Suppose that a European call option to buy a share for $100.00 costs $5.00 and is held until maturity. Under what circumstances will the holder of the option make a profit? Under what circumstances will the option be exercised? Draw a diagram illustrating how the profit from a long position in the option depends on the stock price at maturity of the option.