Multinational Finance Homework -
Q1. Assume you have purchased a June call option on British pounds: the strike price is $1.30/£; the option premium is $0.10/£; and it is European style.
1) Please fill out the blanks in the table.
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Spot rate at maturity (in June)
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Exercise or not?
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Net profit or payoff
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1.15
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1.20
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1.25
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1.30
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1.35
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1.40
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1.50
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1.60
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2) Where is the break-even point?
3) Please draw the payoff diagram to illustrate the payoff. Make sure to mark down the strike price, the break-even point, and the moneyness (in the money, at the money, and out of the money) on the diagram.
Q2. Assume you have purchased a June put option on British pounds: the strike price is $1.30/£; the option premium is $0.10/£; and it is European style.
1) Please fill out the blanks in the table.
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Spot rate at maturity (in June)
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Exercise or not?
|
Net profit or payoff
|
|
1.10
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1.15
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1.20
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1.25
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1.30
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1.35
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1.40
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1.45
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2) Where is the break-even point?
3) Please draw the payoff diagram to illustrate the payoff. Make sure to mark down the strike price, the break-even point, and the moneyness (in the money, at the money, and out of the money) on the diagram.