Assume a call option contract on Australian dollars is available with an exercise price of $0.75/AUD and

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Assume a call option contract on Australian dollars is available with an exercise price of $0.75/AUD and a contract size of AUD10,000. This is a European option, and the premium is $0.05/AUD.

a. If you take a long position on this contract, at what future spot exchange rate at maturity will you maximize your profit? What is the amount of the maximum possible profit from one contract?

b. What is the maximum possible loss for a buyer of this call option?

c. What is the maximum possible profit from this contract to a call option writer?

d. What is the maximum possible loss for a call writer?

e. At what future spot exchange rate, will the call buyer and writer break even?

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Related Book For  answer-question

International Financial Management ISE

ISBN: 9781266224058

10th International Edition

Authors: Cheol Eun, Bruce Resnick, Tuugi Chuluun

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