A trader holds a call option and put option on the New Zealand dollar. The Call gives the trader the right to 1 million NZD at an exercise exchange rate of 0.70(USD/NZD). The put gives the trader the right to 1 million NZD at an exercise exchange rate of 0.70 (USD/NZD). Determine whether or not the trader will exercise the call option and put option and then calculate the gross pay-off at the following spot exchange rates: (a) 0.75 and (b) 0.65.

Answer rating: 100% (QA)

To determine whether or not the trader will exercise the call option and put option we need to compa... View the full answer