1. A put option has an exercise price of $1.36/€ and a premium of $.015/€. A call option has an exercise price of $1.36/€ and a premium of $.035/€. Individual option contracts are for €25,000. You sell 3 puts and sell 1 call. Your profit/loss if the spot rate when the option matures is $1.25/€ is $_________ and your profit/loss if the spot rate when the option matures is $1.45/€ is $_________.
2. No covered interest arbitrage opportunities and interest rate parity holing imply the same thing.
A. True
B. False
3. Jerry buys a call option on the EURO. Darla writes the call option that Jerry buys. The strike price is $1.33/€ and the premium is $.04/€. What is the breakeven ST for Jerry and Darla?
4. Interest rate parity suggests that if interest rates are 3% higher in Japan than in the U.S., the U.S. dollar should exhibit a forward (approximations are fine)
A. Premium of about 2%
B. Discount of about 3%
C. Premium of about 3%
D. Discount of about 9%
E. Discount of about 4%