A U.S. investor believes that the dollar will depreciate and buys one call option on the euro at an exercise price of $1.10 per euro. The option premium is $0.01 per euro, or $625 per contract of 62,500 euros (Philadelphia).
a. For what range of exchange rates should the investor exercise the call option at expiration?
b. For what range of exchange rates will the investor realize a net profit, taking the original cost into account?
c. If the investor had purchased a put with the same exercise price and premium, instead of a call, how would you answer the previous two questions?