1. 1. The dollar to the euro is quoted at $1.1260/€ today. Put options on the euro with an exercise price of $1.1280/€ and expiration in three months are selling for $0.0362/€. Each option contract calls for the exchange of €62,500. You start with $126,400 (plus or minus enough dollars to round to nearest whole contract).

   1. If you buy the euro puts, how much premium do you pay per contract? €62,500*$0.0362/euro = $2,262.50/ct

   2.  How many put contracts can you buy? ((126,400)/(2262.50/ct)) = 56 contracts

   3.  How much more money do you need to add to (or keep from) the $126,400 to round the number of contracts to the nearest whole number.

   2262.50*56=126,728

   126,700-126,400=$300 more

   4.  If in three months the exchange rate is $1.0918/€:

   1.  Would you exercise? Yes, I would Exercise because the Strike price is higher.

   2.  What would be the total payoffs? PO = Max ($1.1280/euro - $1.0918/euro) *62,500 *56 =126,700

   3.  What would be the total profits/losses? Answer = 0